Roth HELP needed

[Bruno]

So Fido says i can contribute $7k in 2022 to my Roth and i did. I keep a running total of our income. I was doing roth conversion and knew i was going to be close to the upper limit of $214K. I was told that roth conversion count in how much taxes you owe but it would wasnt used in Roth contribution limits. The markets were down so I moved another 10k. So now the tax gal tell me today I might have got some WRONG information from another Forum. So can you believe I am in another forum asking for HELP how to get out of this MESS. I have already made my $7500 contribution for 2023.

So what are my options? Can i call back Fido and ask them to take back the 2022 contribution or what would you do. THANKS for any help on this matter. Bruno

[cathy63]

Yes, the Roth Conversion counts as income. If your income exceeded $214K, then you cannot contribute directly to a Roth IRA. If your income exceeded $204K, then you could only make a partial contribution, so the $7K was too much even in that situation.

You have two options:

1) Call Fido and tell them to recharacterize the 2022 Roth contribution and move it to your tIRA. This will be a non-deductible IRA contribution and it means that you will have a basis in your tIRA forevermore, and you'll have to use form 8606 to calculate the taxable portion of all future conversions.

2) Call Fido and tell them you need to remove the excess contribution and earnings. If there are earnings, they are taxable on your 2022 tax return, even though you might not get a 1099-R until next year.

Please also verify that you have at least $7K in earned income from a job or self employment. You cannot contribute to any Roth or traditional IRA if you don't have at least as much earned income as you contributed, so if that is the case, option 2 is your only choice.

[Bruno]

Quote:

Originally Posted by cathy63 Yes, the Roth Conversion counts as income. If your income exceeded $214K, then you cannot contribute directly to a Roth IRA. If your income exceeded $204K, then you could only make a partial contribution, so the $7K was too much even in that situation. You have two options: 1) Call Fido and tell them to recharacterize the 2022 Roth contribution and move it to your tIRA. This will be a non-deductible IRA contribution and it means that you will have a basis in your tIRA forevermore, and you'll have to use form 8606 to calculate the taxable portion of all future conversions. 2) Call Fido and tell them you need to remove the excess contribution and earnings. If there are earnings, they are taxable on your 2022 tax return, even though you might not get a 1099-R until next year. Please also verify that you have at least $7K in earned income from a job or self employment. You cannot contribute to any Roth or traditional IRA if you don't have at least as much earned income as you contributed, so if that is the case, option 2 is your only choice.

THANKS Cathy63 for the fast response. This was a Cash contribution from my brokerage account. I will call and have them move it back to my Joint account. My wife is still working so I guess this counts. Do you know if Fido will have to send me new Tax forms now or have to ammend these? I am sure i bought investments so I am probably will lose more money.
I was reading and looks like 2023 numbers are going to be $218k. Once again Thanks for your help!! Bruno

[Bruno]

PS it looks like making too much money i will also lose my over $11k credit for my daughters college. I really need to find a good CPA here in Oklahoma.

[SevenUp]

Quote:

Originally Posted by Bruno I was told that Roth conversion counts in how much taxes you owe but it isn't used in Roth contribution limits.

You were told correctly. See MAGI for Roth IRA purposes.

That will take you to Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes.

See lines 1, 2, and 3 of that worksheet.

So you might have no issue.

[cathy63]

Quote:

Originally Posted by SevenUp You were told correctly. See MAGI for Roth IRA purposes. That will take you to Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes. See lines 1, 2, and 3 of that worksheet. So you might have no issue.

You are right, I did not know there was a MAGI for Roth. Thanks for pointing that out.

[Bruno]

Big THANK YOU to Cathy63 and Sevenup for their HELP with my problem. Now if I can convice my tax lady, it will help me from having to pull back my 2022 Roth contribution of $7k. Thanks again to both of you!! Bruno