12 Comments

1. 

   dbest47 on September 8, 2022 at 11:10 am

   Travis, thanks for info. I must tell that had to take 2 Tylenol pills after watching this video. Why would anyone contribute more than limits set by IRS Duh! The IRS is about to hire 87,000 new agents. On Excess Roth IRA contribution, would making a smaller contribution following year fix problem ?

2. 

   smirkit on September 8, 2022 at 11:10 am

   Hi, I have been searching the Internet high and low to make sure I am going to do this right.

   Every year, on January 1, I contribute max contributions to my Roth IRA as I was never in danger of going over the income limit.

   This year, due to unforseen circumstances, I am sure I am over the income limit to even contribute a single dollar, meaning I am only eligible to contribute $0.

   I am looking for the correct way to handle recharacterizing my $6k.

   I have a workplace 401k, a traditional IRA (401k from 2 previous employers ago that I transferred to a traditional IRA instead of transferring to current employer 401k), and a Roth IRA.

   Since I am wanting to recharacterize my excess Roth IRA contributions, do I need to empty out my traditional IRA into my current employer's 401k? Also since the economy is down, I wouldn't have made money on my excess contributions this moment in time, so does the pro rata rule still apply?

3. 

   Vin Man on September 8, 2022 at 11:10 am

   What if I reached my limit in my Fidelity Investment Roth IRA but had taken back some of the principal, does the amount I pulled force an adjustment in my Roth Contribution Limit being reached?

4. 

   Julius Nazareno on September 8, 2022 at 11:10 am

   How stupid is it that Americans have to recharacterize Roth contributions as non-deductible Traditional contribution only to convert them afterwards…

5. 

   willthethrill3 on September 8, 2022 at 11:10 am

   Thanks for this video, it's really helpful. I did this exact transaction in 2021: I initially made an after-tax contribution to my Roth IRA by mistake, and realized I meant to put it in my traditional IRA. I re-characterized the full amount of my initial contribution into my traditional IRA, minus the loss of a few dollars it had while it sat in the Roth. I then converted that money back into my Roth account via a back door conversion. I was under the impression that these transactions would not be subject to taxes in 2021 because they were after-tax contributions and I followed the re-characterization steps. However, my Vanguard 1099-R for the traditional IRA now says that the full amount I converted into my Roth IRA is taxable by the IRS. Is that right? Thanks for any insight you can offer.

6. 

   Vaibhav Patel on September 8, 2022 at 11:10 am

   Hey Travis,

   Thanks for clarifying it. I had a similar issue however I had no gains but instead loses.

   Contributed:$1500
   After recharacterization: $1438
   This money was invested in mutual fund (sp500) in my Roth IRA and after recharacterization it's got sent to Tradition IRA with the same mutual fund. So prettyy much right now I have Traditional IRA with Sp500 worth of $1438.

   Do I need to convert this to cash before converting to Roth IRA?

   Using vanguard and there is a button that says "Convert to Roth IRA"

7. 

   Fabiano Pina on September 8, 2022 at 11:10 am

   You seem to have a wealth of information, would you like to help me do my taxes as a case study for the channel? I assure you, it is easy "for you". Haha

8. 

   bospat1 on September 8, 2022 at 11:10 am

   I opened a Roth IRA in 2021 oblivious on the rules. I contributed total of 4600 in 2021 and another 1800 in 2022 but in the downturn the total value in cash is 3965. I've been trying to understand the recharacterization rules but determining the opening balance prior to any contributions baffles me – I believe it was zero becuase I jsut opened the account. The IRS worksheet doesn't seem to take this in account and seems written for someone who had an existing balance. Can you help sort out opening balance in a new account?

9. 

   Daisy Today on September 8, 2022 at 11:10 am

   Can I preemptively use the back door to avoid excess contribution to my Roth ira. I think I will be over the income limit this year but not sure yet. can I contribute to IRA then convert to Roth IRA just in case?

10. 

    Sherrie Schmidt on September 8, 2022 at 11:10 am

    If I’m contributing monthly ($500/mo) to max my $6k a year contribution, do I do this recharacterization monthly from Roth to Traditional? Or would I wait until my last contribution in the Roth on Dec 2, then recharacterize on Dec 15th. Then ultimately convert back into the Roth before the end of the calendar year? My confusion lies with the timing of these actions and getting a full yr of taxes done and over with. I don’t like having to recharacterize this year cause I made too much last year and now the conversion will be part of my 2022 taxes, but all this is from contributions in 2021.

11. 

    Jring on September 8, 2022 at 11:10 am

    I set up a Roth IRA in 2021, and made a partial contribution of $5k. My business partner and I transitioned our partnership into an S-Corp before the end of 2021 (after my contribution), and if I understand it correctly, the S-Corps profits are a pass through onto the shareholders personal AGI/MAGI, therefore I believe that I will have surpassed the limit of any contributions to a Roth IRA (I'm filing 2021 at MFJ). Here is where it gets tricky, my Roth IRA is with Itrustcapital, I invested in some crypto and now that $5k has gone down 50% (which I'm not worried about), but what would be the best course of action here. Thanks in advance!

12. 

    Derik R on September 8, 2022 at 11:10 am

    Thanks for clearing this up! I knew the recharacterization from IRA to ROTH IRA couldn't be undone due to Tax Law change from 2018. I thought the same would maybe apply to the Roth excess into non-deductible IRA, and then back door conversion. Glad to hear it's not, but not happy about going through the headaches to get it done.