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Income level exceeded for Roth IRA contribution
Old 03-26-2018, 07:08 PM   #1
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Income level exceeded for Roth IRA contribution

Last year, 2017, I made the maximum Roth IRA contribution of $6500. In doing my income taxes this year, I realized that my 2017 income exceeded the Roth IRA income limits for a full contribution to a Roth IRA. My income, married filing jointly, was around $190,000.

I know I need to do a recharacterization of the contribution and interest earned into a traditional IRA. But, I'm not sure how to calculate the amount I need to transfer from the Roth to the Traditional IRA. Does anyone know how to make that calculation?
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Old 03-26-2018, 08:28 PM   #2
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For Roth conversion recharacterizations Fidelity did the calculations for me. It seems like that is the only way to do it, and it's probably the same for contributions. Just tell your Roth IRA provider how much of the original contribution needs to come out.
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Old 03-26-2018, 08:48 PM   #3
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Originally Posted by Animorph View Post
For Roth conversion recharacterizations Fidelity did the calculations for me. It seems like that is the only way to do it, and it's probably the same for contributions. Just tell your Roth IRA provider how much of the original contribution needs to come out.
NOPE
This is not covered by undoing a conversion, so recharacterization does not fit. You have to pull back the contribution that was too much and associated earnings. You pay a penalty on the over contribution and a penalty on the earnings if this was an early withdraw.


Look here

Quote:
The Penalties
The penalty for an ineligible contribution is 6% of the ineligible amount. You pay this penalty when you file your income tax return using Form 5329.

If you don’t correct the mistake you will have to pay the penalty each year until it is corrected. If you’re not able to take a qualified distribution from your Roth IRA (to correct the mistake) you will pay an additional 10% early withdrawal penalty on earnings (interest).
you could have done a backdoor roth and not had this problem.
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Old 03-27-2018, 05:21 AM   #4
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When this happened to me a few years ago I did the recharacterization from Roth to regular IRA (non-deductible). Fidelity assisted.
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Old 03-27-2018, 06:00 AM   #5
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IF you do it before you pull it out before taxes are due you can avoid the contribution penalty. See here
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Old 03-27-2018, 08:33 AM   #6
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Originally Posted by PERSonalTime View Post
Last year, 2017, I made the maximum Roth IRA contribution of $6500. In doing my income taxes this year, I realized that my 2017 income exceeded the Roth IRA income limits for a full contribution to a Roth IRA. My income, married filing jointly, was around $190,000.

I know I need to do a recharacterization of the contribution and interest earned into a traditional IRA. But, I'm not sure how to calculate the amount I need to transfer from the Roth to the Traditional IRA. Does anyone know how to make that calculation?
Not sure about the recharacterization. It looks like others have answered.

Regarding future ROTH IRA, do a back door. Basically contribute $6500 into a traditional IRA (without the deduction because you make too much), then a week later convert it to a ROTH. I have done it with Vanguard and with ETRADE. Easy peasy.
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Old 03-27-2018, 09:23 AM   #7
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Originally Posted by Bigdawg View Post
Not sure about the recharacterization. It looks like others have answered.

Regarding future ROTH IRA, do a back door. Basically contribute $6500 into a traditional IRA (without the deduction because you make too much), then a week later convert it to a ROTH. I have done it with Vanguard and with ETRADE. Easy peasy.

Does it need to be a week? This year was my second backdoor, last year I took an old IRA and backdoor'd. This year, I took my traditional contribution and within a day did a backdoor. Was that too soon?
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Old 03-27-2018, 09:28 AM   #8
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Originally Posted by Bigdawg View Post
Not sure about the recharacterization. It looks like others have answered.

Regarding future ROTH IRA, do a back door. Basically contribute $6500 into a traditional IRA (without the deduction because you make too much), then a week later convert it to a ROTH. I have done it with Vanguard and with ETRADE. Easy peasy.
I noted the backdoor roth earlier, but did not note some of the caveats. You can do the easy, but be careful if you have any other TIRAs. A back door roth is basically a roth conversion. It is only tax free if you have no pre tax contributions or appreciation in any of your TIRAs. Otherswise you have to use prorated tax basis for all your TIRAs. It is easy to do the back door roth, but understand the tax requirements. You paid the tax to fund this year's TIRA. But if you have a low tax basis in all TIRAs, you could pay tax of most of the conversion to make it a roth.

Another note, if you already did a roth conversion, you may have to re-characterize it back to a TIRA. And then do the process to undo the contribution to the after tax IRA contribution.

There are so many interconnecting things in all this stuff. Also remember that re-characterization is going away... so no more redo starting in 2018.
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Old 03-27-2018, 09:41 AM   #9
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Does it need to be a week? This year was my second backdoor, last year I took an old IRA and backdoor'd. This year, I took my traditional contribution and within a day did a backdoor. Was that too soon?
No, it does not have to be a week.

back door is when you do a contribution to a taxable TIRA and then do a roth conversion (usually) quickly. The back door is for the people who are too high of income that they can not directly make a roth contribution. However, anyone can take an TIRA and convert it to a roth. This is not back door.
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