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Roth IRA withdrawal and Trad IRA contribution in same year?
Old 10-17-2023, 09:40 AM   #1
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Roth IRA withdrawal and Trad IRA contribution in same year?

Can I withdraw from a Roth IRA and contribute to a Traditional IRA in the same year and still take the tax deduction for the Traditional IRA contribution, assuming I am otherwise eligible for the tax deduction? The purpose of this would be to manage MAGI for ACA purposes.

Thanks!
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Old 10-17-2023, 10:08 AM   #2
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I can't think of why you couldn't do that as long as you are eligible to withdraw from the Roth IRA with no penalty (withdrawing contributions or you are over 59-1/2, etc.)
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Old 10-17-2023, 10:28 AM   #3
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Roth Conversion Recharacterizations are no longer allowed since 2018 TCJA went into effect. I just wanted to make sure that you weren't trying to do this.

Also you can't contribute the maximum in a given year to both a Roth and a traditional IRA.

Those are the two pitfalls I see offhand.

I believe that Roth Contribution Recharacterizations are still allowed.

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Old 10-17-2023, 10:34 AM   #4
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I can't think of why you couldn't do that as long as you are eligible to withdraw from the Roth IRA with no penalty (withdrawing contributions or you are over 59-1/2, etc.)
Thanks! My husband and I file jointly and we would be withdrawing from his Roth IRA (because he is over 59.5) and contributing to one or both of our Traditional IRAs. Looking at the "IRA Deduction Worksheet" in the IRS instructions for Schedule 1, I don't see anything about a withdrawal (from either type of IRA) affecting the deduction. But I thought I might be missing something. Spouse is over 59.5 but not old enough for any RMDs.
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Old 10-17-2023, 10:34 AM   #5
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It can be done, but the Roth withdrawal does not count as earned income towards IRA contributions.

Do you have earned income ?
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Old 10-17-2023, 10:37 AM   #6
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Thanks! My husband and I file jointly and we would be withdrawing from his Roth IRA (because he is over 59.5) and contributing to one or both of our Traditional IRAs. Looking at the "IRA Deduction Worksheet" in the IRS instructions for Schedule 1, I don't see anything about a withdrawal (from either type of IRA) affecting the deduction. But I thought I might be missing something. Spouse is over 59.5 but not old enough for any RMDs.

A person over the age of 59.5 can withdraw from IRA's without penalty and does not have to wait for RMD's.
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Old 10-17-2023, 10:39 AM   #7
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Roth Conversion Recharacterizations are no longer allowed since 2018 TCJA went into effect. I just wanted to make sure that you weren't trying to do this.

Also you can't contribute the maximum in a given year to both a Roth and a traditional IRA.

Those are the two pitfalls I see offhand.

I believe that Roth Contribution Recharacterizations are still allowed.

-gauss
Thanks! We are not trying to recharacterize, unless I am misunderstanding what that means. It may be advantageous to contribute to T-IRAs to reduce our taxable income for ACA purposes. However, we may want/need to withdraw from a Roth IRA in order to have the funds to contribute to the T-IRA. I was thinking of totally separate transactions. I just don't want a Roth withdrawal to make us ineligible for a T-IRA tax deduction (for which we would otherwise be eligible) because that would be the only point of the Roth withdrawal.
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Old 10-17-2023, 10:42 AM   #8
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Ok Sounds Good. Thanks for the clarification.
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Old 10-17-2023, 10:48 AM   #9
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It can be done, but the Roth withdrawal does not count as earned income towards IRA contributions.

Do you have earned income ?
Thanks! Yes, we have earned income. My husband is retired, but I work and make more than twice the contribution limit, making us eligible to each contribute the full amount since we file jointly.
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Old 10-17-2023, 10:53 AM   #10
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Thanks! We are not trying to recharacterize, unless I am misunderstanding what that means. It may be advantageous to contribute to T-IRAs to reduce our taxable income for ACA purposes. However, we may want/need to withdraw from a Roth IRA in order to have the funds to contribute to the T-IRA. I was thinking of totally separate transactions. I just don't want a Roth withdrawal to make us ineligible for a T-IRA tax deduction (for which we would otherwise be eligible) because that would be the only point of the Roth withdrawal.
Quoting myself to clarify. We would withdraw from the Roth to have enough funds overall to contribute to the T-IRA, but we have more earned income than we would be contributing to the IRA.
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Old 10-17-2023, 11:01 AM   #11
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I also realize that this strategy may or may not be wise. At this point, I just want to know if it would work. That way, if we need to contribute some to a T-IRA to get us under a certain amount for ACA purposes, we can. Even if we then decide to withdraw from a Roth to "make up" for that amount.
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Old 10-17-2023, 11:20 AM   #12
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I also realize that this strategy may or may not be wise. At this point, I just want to know if it would work. That way, if we need to contribute some to a T-IRA to get us under a certain amount for ACA purposes, we can. Even if we then decide to withdraw from a Roth to "make up" for that amount.
I see no issues with it, an interesting income adjustment.

I guess you are pretty careful about interest earnings and surprise fund announcements of declared dividends and capital gains as well.

I know this year for us, interest will be much higher, and will have to tediously add up all the sources to get close to the actual number.
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Old 10-17-2023, 12:43 PM   #13
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I guess you are pretty careful about interest earnings and surprise fund announcements of declared dividends and capital gains as well.

I know this year for us, interest will be much higher, and will have to tediously add up all the sources to get close to the actual number.
I are trying to keep careful track of interest and limit managed funds, but I am still learning new things all the time. I have always been interested in taxes, but my husband's 2020 pandemic layoff led to an early retirement and thus the ACA and other retirement-related issues.
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Old 10-17-2023, 04:21 PM   #14
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FYI. If you normally qualify for the Saver's Credit, know that any withdrawal from any tax deferred or Roth account will disqualify you for the Saver's Credit.
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Old 10-17-2023, 04:52 PM   #15
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FYI. If you normally qualify for the Saver's Credit, know that any withdrawal from any tax deferred or Roth account will disqualify you for the Saver's Credit.
...only to the extent that they offset, I think. A $6,000 Roth IRA distribution and $12,000 of traditional IRA contributions, for example, could still enable an MFJ couple to take the Saver's credit provided their AGI was in range. See Form 8880 line 4.

OP, I think what you're doing can work, although it's an uncommon thing since most people would rather leave the money in the Roth and would choose to contribute to the traditional IRA either out of current income or from taxable savings/investments.

You might also consider HSA contributions. If you're eligible and like HSAs, they also reduce AGI for purposes of ACA.
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Old 10-17-2023, 07:22 PM   #16
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FYI. If you normally qualify for the Saver's Credit, know that any withdrawal from any tax deferred or Roth account will disqualify you for the Saver's Credit.
Thanks! I will make sure to factor this in.
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Old 10-17-2023, 07:29 PM   #17
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OP, I think what you're doing can work, although it's an uncommon thing since most people would rather leave the money in the Roth and would choose to contribute to the traditional IRA either out of current income or from taxable savings/investments.
Right, I'm not sure yet if this would end up being beneficial, but there may be one or two years where it would be. I will do the math, but I first wanted to check whether this was even an option.

Oh, and you mentioned HSAs. My husband recently started Medicare so he can no longer contribute to an HSA. However, I will be looking into the possibility of HSA-eligible ACA plans for myself for 2024. I need to weigh a lot of variables, though, because right now we qualify for CSRs which is really nice. But not nearly as valuable as when we has DH, DD, and I all on ACA. Now, with just me on an ACA plan (DH is on Medicare, DD has a job with benefits), the CSRs are not as valuable.
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Old 10-17-2023, 07:46 PM   #18
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Right, I'm not sure yet if this would end up being beneficial, but there may be one or two years where it would be. I will do the math, but I first wanted to check whether this was even an option.

Oh, and you mentioned HSAs. My husband recently started Medicare so he can no longer contribute to an HSA. However, I will be looking into the possibility of HSA-eligible ACA plans for myself for 2024. I need to weigh a lot of variables, though, because right now we qualify for CSRs which is really nice. But not nearly as valuable as when we has DH, DD, and I all on ACA. Now, with just me on an ACA plan (DH is on Medicare, DD has a job with benefits), the CSRs are not as valuable.
I did a Silver plan for the first few years of retirement in order to get those CSRs. Eventually I realized that I could get a lower cost Bronze HSA eligible plan, pay zero out of pocket, and fund an HSA. The Bronze HSA plan doesn't really cover anything until a very high deductible, but I'm willing to take that risk for the lower cost and HSA funding since I've historically been (knock wood) healthy. I think I'm ahead, but it's only been a few years.

Good luck whatever you decide.
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Old 10-17-2023, 08:03 PM   #19
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I did a Silver plan for the first few years of retirement in order to get those CSRs. Eventually I realized that I could get a lower cost Bronze HSA eligible plan, pay zero out of pocket, and fund an HSA. The Bronze HSA plan doesn't really cover anything until a very high deductible, but I'm willing to take that risk for the lower cost and HSA funding since I've historically been (knock wood) healthy. I think I'm ahead, but it's only been a few years.

Good luck whatever you decide.
Thanks! I may be at that point also, where a Bronze HSA eligible plan becomes a better deal than a Silver with CSRs. With three of us on a Silver plan with CSRs, we were hitting the out of pocket max and really benefitting, but with just me on the plan I have not even hit the deductible.
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Old 10-17-2023, 10:37 PM   #20
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...only to the extent that they offset, I think. A $6,000 Roth IRA distribution and $12,000 of traditional IRA contributions, for example, could still enable an MFJ couple to take the Saver's credit provided their AGI was in range. See Form 8880 line 4.
Did not realize that. Thanks. We pulled $22K from a beneficiary IRA and put $14K into our traditional IRAs and Turbo Tax just told me that we did not qualify for the Savers Credit because of the withdrawal.
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