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Roth IRA Conversion Over Income Limit

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  • Jarpee Jarpee 
    Participant
    Status: Physician, Small Business Owner
    Posts: 127
    Joined: 02/06/2017

    Hey all, question for a friend, he is a new attending and had automatic contributions to his Roth IRA with Betterment set up as a resident. He didn’t think to change this for 2019 when he is making over the income limit for Roth as an attending. So does anyone know what he needs to do? I know with the Trump tax law re-characterizations are no longer allowed. Will these Roth contributions be considered taxable contributions in a regular taxable brokerage? Once this is figured out can he perform a correct backdoor Roth conversion on the entire 6k for 2019 even though he has contributed 3200 directly to his roth for this year? Any guidance is appreciated.

    #235522 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4452
    Joined: 01/08/2016
    I know with the Trump tax law re-characterizations are no longer allowed.

    Click to expand…

    re-characterizations of conversions. not contributions.

    #235523 Reply
    Jarpee Jarpee 
    Participant
    Status: Physician, Small Business Owner
    Posts: 127
    Joined: 02/06/2017
    I know with the Trump tax law re-characterizations are no longer allowed. 

    Click to expand…

    re-characterizations of conversions. not contributions.

    Click to expand…

    Ah, so he can re-characterize the contributions?

    #235524 Reply
    Avatar DavidGlennCPA 
    Participant
    Status: Accountant
    Posts: 60
    Joined: 06/12/2019

    He should withdraw the excess contributions from the account.  They’re tax free and not subject any penalty.  If there are earnings on his contribution then that is taxable.

     

    Since he withdrew the $3,200, I think it’s like it never happened.  He can then go ahead and make a non-deductible contribution to a traditional IRA and then move the money to a Roth IRA for the back door Roth.

     

     

    David Glenn, CPA | Glenn Advisory
    https://www.taxcpafordoctors.com | (808) 321-5664

    #235542 Reply
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 519
    Joined: 06/12/2017

    Recharacterize the 2019 contributions from Roth to Traditional IRA contributions.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #235560 Reply
    Liked by Peds
    Avatar HenderAE 
    Participant
    Status: Physician
    Posts: 2
    Joined: 05/15/2019

    Asking a few more questions for a similar situation. 1. made an ineligible Roth contribution in 2018 and didn’t realize it until recently.  2. recharacterized the ineligible Roth contribution for 2018 (plus the earnings) to a traditional IRA.  3. plan to move it back to Roth via the backdoor (for the 2019 tax year with the contributions being in 2018 technically?).  Is there anything to do on the 2018 tax return to document this or just fill out an 8606 for 2019?

     

    Thanks

    #237001 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8141
    Joined: 01/09/2016

    Asking a few more questions for a similar situation. 1. made an ineligible Roth contribution in 2018 and didn’t realize it until recently.  2. recharacterized the ineligible Roth contribution for 2018 (plus the earnings) to a traditional IRA.  3. plan to move it back to Roth via the backdoor (for the 2019 tax year with the contributions being in 2018 technically?).  Is there anything to do on the 2018 tax return to document this or just fill out an 8606 for 2019?

    Click to expand…

    So you recharacterized in 2019 but it will be reported as a tax year 2018 transaction? If so, I believe you’ll need to file an 8606 for 2018 for step one and a 2019 8606 for the conversion (and probably for the backdoor process for 2019, too).

    Hoping someone else can confirm. I haven’t experienced this beyond 4/15 before.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #237017 Reply
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    Avatar HenderAE 
    Participant
    Status: Physician
    Posts: 2
    Joined: 05/15/2019

    Yes- I think that is correct? Recharacterized in 2019 but my 2018 contribution. So basically I document this as if I made a traditional IRA contribution in 2018 in part 1 of the 8606 form.
    ?
    Thanks

    #237030 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8141
    Joined: 01/09/2016

    Yes- I think that is correct? Recharacterized in 2019 but my 2018 contribution. So basically I document this as if I made a traditional IRA contribution in 2018 in part 1 of the 8606 form.
    ?
    Thanks

    Click to expand…

    Yes, that is what I recommended. You can try calling your custodian to see if you get someone on the phone who knows what they are talking about. Hit or miss, though.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #237038 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1910
    Joined: 02/01/2016
    Earnest refinancing bonus

    Even though you will recharacterizing this contribution “in” 2029, it is “for” an 2018 contribution.

    Normally, you do not need to file an amended return to file a Form 8606. However, in this case you most definitely want to file an amended return, write “Filed pursuant to section 301.9100-2” on the return. File the amended return at the same address you filed the original return and include a written explanation of the recharacterization.

    The last is the only way the IRS knows what has been recharacterized. This is not reported by the custodian s.

    #237072 Reply

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