Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Quick question on IRA recharacterization
Old 01-20-2018, 12:44 PM   #1
gone traveling
 
Join Date: Oct 2016
Posts: 255
Quick question on IRA recharacterization

I contributed to a Roth for 2017, now I'm thinking I want that to be tIRA (need the deduction). Suppose I contributed $6500 (the max) to the Roth, but now, thanks to a great year, that Roth is now worth $8000. When I recharacterize, does that entire $8000 go into my tIRA? And then I get a $6500 deduction? Or can I only recharacterize $6500?
__________________

Curmudgeon 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 Early-Retirement.org 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 01-20-2018, 12:59 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 9,113
That's my understanding. It's like going back in time and changing the decision, so your $6500 contribution to the Roth becomes a $6500 tIRA contribution, and the $1500 earned is moved over as well, as if it had been making that money in the tIRA instead of the Roth.


Make sure that's what you really want to do. That's a 20+% tax free return in the Roth that you will eventually be taxed in when you take it out of the tIRA.
__________________

RunningBum is offline   Reply With Quote
Old 01-20-2018, 01:44 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,932
Quote:
Originally Posted by RunningBum View Post
...........................................

Make sure that's what you really want to do. That's a 20+% tax free return in the Roth that you will eventually be taxed in when you take it out of the tIRA.
+1

assume 20% tax rate for simplicity: have 1.3K in taxable account
1) Leave in Roth; use 1.3K in taxable to pay taxes on Roth so only have 8K in Roth; after N yrs, Roth doubles to 16K
2) Recharacterize to TIRA, so have 8K in TIRA and 1.3K in taxable. After N yrs TIRA doubles to 16K; taxable to 2.6K. After 20% taxes, TIRA is worth
12.8K and taxable is worth 2.4K- for total of 15.2K- (less than the Roth)

Of course, if you withdraw TIRA at lower tax rates, option 2) could come out better so, as usual, depends on assumptions.
kaneohe is offline   Reply With Quote
Old 01-20-2018, 02:15 PM   #4
gone traveling
 
Join Date: Oct 2016
Posts: 255
The biggest things this analysis is missing are my high state taxes, and lost ACA premium tax credit - so I think I'm better doing the tIRA this year. I was just asking about the mechanics.
Curmudgeon is offline   Reply With Quote
Old 01-23-2018, 09:50 PM   #5
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 4,001
You can recharacterize any amount from $0 to $6500. Your IRA custodian will calculate the associated gains (or losses, but in your case it sounds like it's all gains) and move those over as well.

You will then take the deduction on your tax return for the recharacterized amount, not the actual amount that gets moved over.

So if you recharacterize the whole $6500 then your IRA custodian would move $8000 over and you would get a deduction of $6500. If you recharacterize $3250 then your IRA custodian would move $4000 over and you would get a deduction of $3250.

I don't recall if you get a tax statement from the custodian after the recharacterization, so I would recommend writing yourself some notes for your tax files so you can remember what happened in case the IRS asks questions later.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Reply


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
Recharacterization conundrum: Ed Slott vs. Michael Kitces BrianB FIRE and Money 25 01-27-2018 08:29 AM
Alternatives to Conversion/Recharacterization nico08 FIRE and Money 9 12-29-2017 10:06 AM
Letter from IRS about Roth Recharacterization Looking4Ward FIRE and Money 18 08-08-2017 05:41 PM
Roth Conversion/Recharacterization strategy finally sunk in RunningBum FIRE and Money 29 04-16-2017 05:02 AM
Roth Conversions - - Recharacterization Sandy & Shirley FIRE and Money 18 09-03-2016 05:52 AM

» Quick Links

 
All times are GMT -6. The time now is 10:52 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×