In this video we’re answering the question “My Income Exceeded the Roth IRA Limit. How Do I Fix This?” The White Coat Investor wants to help you stop doing dumb things with your money, so in this video series we answer questions you have submitted.
A listener exceeded the income limit for his Roth IRA and now needs to recharacterize the contribution. If there’s any chance you’ll make more than the Roth IRA limit you should always use the backdoor Roth IRA. If you’ve made this mistake, this is how you fix it.
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About me:
I contributed the full $6,000 to my Roth IRA in 2021. However, I made above the Roth IRA income limits.
I haven’t filed taxes for 2021 yet (got an extension)
I haven’t contributed to any IRAs for 2022 yet
I don’t have any other IRAs besides my 1 Roth IRA
Here’s my progress so far and questions:
I recharacterized the contribution + earnings = $6,788 from the Roth IRA to a Traditional IRA.
I think I need to report the Roth recharacterization on Form 8606 as if it were a regular non-deductible traditional IRA contribution. –> Do I report the full $6,788? If so, how?
Now, I want to do a Roth conversion: get the money from the Traditional IRA and put it back into the Roth IRA. Can I transfer the full $6,788 back into the Roth IRA for 2021? Or can I only transfer over $6,000 for 2021? When/where will this be reported?
Am I still able to do a separate backdoor Roth IRA for 2022?
So I maxed out my 2021 Roth IRA contributions, not knowing I was going to over contribute for 2021 due to getting a new job. I want to re-charactize the excess 2021 contributions from a Roth IRA –> Traditional IRA , but I am wondering… If money that goes into the Roth IRA is after-tax, and a Traditional IRA is tax-deferred, would I essentially be getting double taxed by going from Roth –> Traditional back to –> Roth?
what if your Roth has a loss after you contributed and before you re-characterize the contribution?
Very helpful! Saved me!
So i could take my roth If I made to much that year and just move it to a traditional IRA and then back to a Roth? Is there a waiting period to do all this. Sounds crazy.
Isn't there a 6% fee to recharacterize Roth IRA contributions as IRA contributions?
Thanks for the video! Quick question, if I over contributed $500 to my 2020 Roth IRA limit, is it possible to ask the brokerage to re-classify the extra $500 as a 2021 contribution instead?
Finally, the exact information I wanted but couldn't find in the 10+ previous videos I watched! I encouraged my dad to contribute to a ROTH and found out shortly thereafter his income was too high. He is pulling out his contribution and earnings very soon. Sounds like he can contribute his principal (AND earnings?) into a traditional IRA and then do the ROTH conversion. Fortunately, he doesn't have any funds currently in the traditional IRA so should be easy to backdoor.
Great format. Thanks!