Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Undeposit Roth Contribution?
Old 02-26-2011, 05:13 AM   #1
Dryer sheet aficionado
Join Date: Jan 2008
Posts: 40
Undeposit Roth Contribution?

I just took the first swag at my taxes and I owe the government about double what I was expecting. I spent about half of last year working as an independent contractor and just didn't realize how much the tax hit was going to be. I think I've covered most of the big ticket deductions, but I'm looking for some other ways to reduce my taxes. So my question is:

If I have fully funded my Roth IRA for 2010, can I pull that money out and instead put it towards a conventional IRA so I could take the tax deduction?

If this is legal, is it something I should even consider? Would there be a good reason not to do it?


theHundt is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-26-2011, 06:26 AM   #2
Recycles dryer sheets
Aeowyn's Avatar
Join Date: Jan 2011
Location: Scotts Hill, TN
Posts: 105
It's called recharacterization. Call the caretaker of the IRA and ask what forms you need to fill out to do this.

Aeowyn is offline   Reply With Quote
Old 02-26-2011, 06:38 AM   #3
Dryer sheet aficionado
Join Date: Jan 2008
Posts: 40
Thanks so much! Recharacterization was the word that I needed. It looks like there is a lot of information out there once you know what to search for.
theHundt is offline   Reply With Quote
Old 02-26-2011, 06:49 AM   #4
Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 3,542
The word to add to your vocabulary is recharacterization:
Recharacterization Overview
Be sure to poke around the related links in that article so you get a good view.

You want to confirm that you were even eligible for a Roth (function of MAGI)
and also confirm that you can make IRA deductions (also function of MAGI and'
whether you have a retirement plan at work......look for the box on your W2).

In the article above you'll see one of the reasons for recharacterizing a Roth
is that the value went down and you would have paid too much in taxes for the Roth. Conversely, some say one of the reasons for not recharacterizing is if the value of the Roth increased a lot because that meant you paid less taxes to
get that size of a Roth.
kaneohe is offline   Reply With Quote
Old 02-26-2011, 07:10 AM   #5
Alan's Avatar
Join Date: Jul 2005
Location: Eee ba gum
Posts: 24,128
This tax year I also had to do a recharacterization from a Roth to a TIRA. As K says above, be sure to check the income limits. If they are too high, then you'll have to do the recharacterization anyway, plus, if your income is too high the TIRA won't be deductible so you'll still have the tax hit. And, if your Roth has gained in value you'll actually take an even larger hit on taxes.

Best of luck
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 02-26-2011, 10:12 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
Join Date: Apr 2003
Location: Hooverville
Posts: 22,937
If you are incorporated, look into 401 k vehicles. If sched C, look at solo 401k (Keogh). Some of the larger discount brokers support these. If you plan to keep working this way, very likely this will be worth your while.

"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 02-26-2011, 10:30 AM   #7
Dryer sheet aficionado
Join Date: Jan 2008
Posts: 40
Thanks for all of the replies. This is all very helpful. I'll give a little more background information:

I was laid off from IBM in October of 2009. In the first half of 2010 I took a couple different jobs as a contract programmer, essentially working for myself. In the second half of 2009, I got a job through a contracting company. I was a W-2 employee with the contracting company and taxes were automatically taken out of my paycheck from that point on.

Unfortunately, I was nowhere near the income limits for IRAs so that won't be an issue. As of January 21st of this year, I was brought on full time to the company I was contracting for, so I don't anticipate incorporating or working on my own in the future. However, the past year has been a very interesting experience and I definitely gained some confidence in the fact that I can work for myself and may choose to go that route someday under better circumstances.
theHundt is offline   Reply With Quote
Old 02-26-2011, 10:36 AM   #8
Dryer sheet aficionado
Join Date: Jan 2008
Posts: 40
I currently have my Roth IRA with mbtrading. I opened a conventional IRA with sharebuilder awhile back, but have always just put everything in my Roth up until now. My 401k is almost all in pre-tax money, so I figure I would balance with post tax money in the Roth. However, for 2009, I didn't have a 401k and it looks like from a tax perspective it will save me a fair amount of money by using the conventional IRA instead. I really haven't considered the long term impact of doing this if there is any.
theHundt is offline   Reply With Quote
Old 02-27-2011, 07:38 AM   #9
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 3,961
Sounds like you might qualify for the Solo 401k with self-employment income. That's your best bet, though I don't remember if the account must be established in the same tax year or not. You can stash almost $30k in one before you have to start paying taxes.
Animorph is offline   Reply With Quote
Old 02-27-2011, 07:42 AM   #10
Moderator Emeritus
braumeister's Avatar
Join Date: Feb 2010
Location: Flyover country
Posts: 12,966
I have a solo 401(k) for my Schedule C income with Fidelity. They made it very easy to open and operate.

I thought growing old would take longer.
braumeister is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Roth IRA Contribution? fjammer22 Young Dreamers 13 09-17-2009 10:49 PM
Roth IRA - Contribution Withdrawal Alex. Young Dreamers 3 11-07-2008 07:48 PM
Roth Contribution Advice 10at6 FIRE and Money 7 08-08-2008 08:18 PM
Make Roth Contribution all at once or monthly RedHawk FIRE and Money 26 01-06-2007 12:16 AM
what are you buying with your roth contribution? Berkshire_Bull FIRE and Money 10 01-06-2005 04:12 PM

» Quick Links

All times are GMT -6. The time now is 11:42 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.