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Roth Overcontribution?

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  • Avatar PedsHosp 
    Participant
    Status: Physician
    Posts: 13
    Joined: 01/24/2019

    Hi all, long time lurker but first time poster here.

    I think I found the answer to my question through old posts, but since I’m still pretty new to this stuff, I wanted to double check that I’m not misunderstanding things before I go ahead and do this:

    Briefly: I finished residency in 2018 and ended up earning more in my first few months as an attending than expected, so am not eligible to contribute directly to a Roth. Unfortunately, I already put $5500 in there in early 2018. As we’re still well before April 15, 2019, my understanding is that I can call up Vanguard, and tell them I’d like my 2018 Roth contribution recharacterized as a traditional IRA, let them do that, and then once that’s settled, convert all of it back to a Roth in a back-door Roth style. Is this about right/am I missing anything crucial to think about?

    Related to that – does it affect things at all that when I realized this, I happened to be in the middle of doing my first back door Roth contribution for 2019 – so I have $6000 sitting in a traditional IRA right now at Vanguard waiting to be converted to a Roth – does this affect things at all? Or just recharacterize my 2018 Roth as a traditional IRA contribution, then convert the whole thing ($11500)?

    Finally, are there any special tax forms I’d need to do related to this? I was planning to do my taxes on my own via Turbotax/H&R block or something similar, unless this is something where others would advise having a CPA/EA directly involved in helping with tax prep?

    Thanks in advance to all!

    #186901 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6930
    Joined: 01/09/2016

    Welcome to the forum!

    You have the steps down right. Your TIRA will end up holding $11,500 +/- any change in value from the Roth since you contributed to it. Be sure to do this before 4/18 (I would do it now). You can handle this on your own easily as you probably understand it better than a lot of CPAs at this point. If you have questions during the process, just post them here.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #186913 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3033
    Joined: 01/08/2016

    nope you got it.

    recharacterize, then convert everything at once. youll owe tax on any gains you might have.

    youll have to do form 8606 dont forget.

    a CPA is not needed for this as jfox has already answered.

    #186929 Reply
    Avatar PedsHosp 
    Participant
    Status: Physician
    Posts: 13
    Joined: 01/24/2019

    Awesome thanks! I’ll get working on this.

    #187111 Reply
    Avatar PedsHosp 
    Participant
    Status: Physician
    Posts: 13
    Joined: 01/24/2019

    Okay, so I think I’ve done it right. Now, in terms of form 8606, if I’m understanding it right, I would report it as a tIRA contribution for the 2018 tax year, aka 5500 on lines 1, 3, and 14 – then I will report the Roth conversion and pay tax on the gains (which should be fairly small since the amount was only ~5650 or something) on my 2019 return, yes?  I don’t see anywhere I would need to include the info that it was originally a Roth contribution that was recharacterized to a tIRA – am I missing anything or does this sound right?

    #191282 Reply
    Avatar CharlesRiverOH 
    Participant
    Status: Other Professional
    Posts: 2
    Joined: 03/13/2019

    I am in the exact same situation as you are. I did the recharacterization in March and also contributed to tIRA for 2019. Vanguard said the 1099-R will be available next year. This year, I tell the IRS that I contributed to tIRA.

    I have an additional question. Did you put the basis as $0?

    #198111 Reply
    DMFA DMFA 
    Moderator
    Status: Physician
    Posts: 2115
    Joined: 06/24/2016

    I am in the exact same situation as you are. I did the recharacterization in March and also contributed to tIRA for 2019. Vanguard said the 1099-R will be available next year. This year, I tell the IRS that I contributed to tIRA.

    I have an additional question. Did you put the basis as $0?

    Click to expand…

    If you had no non-deductible contributions to Traditional IRAs in years 2017 or earlier, then line 2 (basis for prior years) should be zero.

    If you made a non-deductible contribution *for* 2018 (including “late” contributions) but did not remove it from Traditional IRA (i.e. convert to Roth) prior to 12/31/2018, then you will have a basis for 2018 on line 14.  That’s OK; you’ll eliminate it when you convert in calendar year 2019, and line 2 for 2019’s Form 8606 (due April 2020) will be whatever was on line 14 for 2018.

    "I like money." - Frito Pendejo (Idiocracy)

    [Not a financial professional (yet), lawyer, or employee of The White Coat Investor]

    #198174 Reply
    Avatar CharlesRiverOH 
    Participant
    Status: Other Professional
    Posts: 2
    Joined: 03/13/2019

    Thank you so much! I really appreciate your timely and detailed reply. I am confident about the accuracy of my return now.

    #198437 Reply
    Avatar PedsHosp 
    Participant
    Status: Physician
    Posts: 13
    Joined: 01/24/2019

    Thanks DMFA – and yeah CharlesRiver, I put basis as $0!

    #199405 Reply

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