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Old 02-28-2015, 06:00 PM
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Recharterize ROTH then Rollover?

I had to recharacterize my ROTH contributions into a traditional IRA due to income limits being exceeded. Can I now rollover that money back in to my ROTH? A CFP told me I could but it seems too easy. My recharacterized contributions are non deductible so the only tax I would pay is on the earnings from the ROTH that were also recharacterized. It just seems silly that I can move the money out of the ROTH into a traditional and then back into the ROTH again.

Are there any time limits to rollover after the recharacterization?



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Old 02-28-2015, 07:08 PM
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I had to recharacterize my ROTH contributions into a traditional IRA due to income limits being exceeded. Can I now rollover that money back in to my ROTH? =========>>I guess it depends. You can only recharacterize amounts rolled into a r- IRA from an employer sponsored retirement plan by transferring them to a new or existing traditional IRA, and not back into the plan from which they were distributed. After a recharacterization, you must wait 30 days before you can make a conversion from the IRA that received the recharacterized assets. As you recharacterized a conversion, you cannot re-convert the same money in the year of the original conversion, nor within 30 days after the recharacterization.You also are not allowed a conversion from that account in the same year as your original conversion. But if you open a new account to receive the recharacterized assets, that will be the account the IRA subjects to the holding period. You can convert assets from another traditional IRA immediately, including the account from which you made the conversion that you recharacterized. You can opt to recharacterize only a portion of your conversion. Let's say you convert $10k but later decide to recharacterize half of that to lower your tax bill. You must account for investment returns as you would with a recharacterization from a blended account. If the conversion was made to a new Roth account, you simply have to recharacterize half the assets. If the recharacterization is from a blended account, you must account for the entire account, including any contributions. Partial recharacterizations must be reported on IRS Form 8606 .

A CFP told me I could but it seems too easy. My recharacterized contributions are non deductible so the only tax I would pay is on the earnings from the ROTH that were also recharacterized. It just seems silly that I can move the money out of the ROTH into a traditional and then back into the ROTH again. ====>>When you convert from a Traditional IRA to a R-IRA you pay income tax on the contributions. The taxable amount converted is added to your income taxes and your regular income rate is applied to your total income.If you have already filed your return, you can file an amended return and subtract the amount recharacterized from the taxable amount of the rollover or conversion reported on your original return.

Are there any time limits to rollover after the recharacterization?===>>as mentioned above.Since you recharacterize a conversion, you cannot re-convert the same money in the year of the original conversion, nor within 30 days after the recharacterization



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Old 02-28-2015, 08:24 PM
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Quote:
Originally Posted by Wnhough View Post
As you recharacterized a conversion, you cannot re-convert the same money in the year of the original conversion
Maybe I don't understand all the terms but I didn't recharacterize a conversion. I recharacterized an annual contribution made directly to my ROTH.

Quote:
When you convert from a Traditional IRA to a R-IRA you pay income tax on the contributions. The taxable amount converted is added to your income taxes and your regular income rate is applied to your total income.If you have already filed your return, you can file an amended return and subtract the amount recharacterized from the taxable amount of the rollover or conversion reported on your original return.
I'm confused. I already paid the tax on the contribution amount when I put it into the ROTH. Because of my income, I still can't deduct it now that it is in a traditional. So, why would I have to pay the tax again on the contribution?



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Old 02-28-2015, 10:00 PM
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Quote:
Originally Posted by edbro View Post

#1;Maybe I don't understand all the terms but I didn't recharacterize a conversion. I recharacterized an annual contribution made directly to my ROTH.



#2;I'm confused. I already paid the tax on the contribution amount when I put it into the ROTH. Because of my income, I still can't deduct it now that it is in a traditional. So, why would I have to pay the tax again on the contribution?
#1; i gues you cAN TALK TO YOUR ADMINistrator fo rmore accurate info

#2;i SAID "When you convert from a Traditional IRA to a R-IRA you NEED TO pay income tax on the contributions". YOU DO NOT PAY tax on your traditional IRA contribution as it is pretax contribution as you can see well;however,R-IRA contributions are not taxed at the time you contribute the funds to your R-IRA. However, your contributions come from post-tax income. You pay taxes on your income today.
assume that you ask your IRA custodian to convert $1k from your traditional IRA to your R- IRA and withhold 15%. What you are really asking to be done is the equivalent of Converting $850 plus Taking an additional $150 distribution and mailing it to the IRS. Using the hypothetical numbers above, you may have meant to convert $1k to your R-IRA, but you really only converted the after-tax amount ,$850. And you took out an additional $150 from your IRA which is subject to the same tax and penalty as any other early withdrawal from your IRA. The fact that you had the $150 sent to the IRS does not matter. Unfortunately, since you really only converted the after-tax amount, that's all you can recharacterize. So, using the above example numbers, $1k came out of your traditional IRA account, $850 went into your R-IRA account, and $150 was sent to the IRS. Since only $850 went into your R-IRA, you can only recharacterize that $850 plus the earnings on the $850(if there is) while it was in your R-iRA. The net result of all the transactions is that the value of your combined Roth and traditional IRA accounts will go down by the amount of the withholding. If it has been less than 60 days since the funds were withdrawn from your traditional IRA account to do the conversion, you can write a check to your R-IRA account for the amount of the withholding and replace the lost funds that way. You need to be sure to tell the R-IRA custodian that this is part of the conversion so that they report it correctly to the IRS. If it has been more than 60 days, you are stuck with the result.
What happens to the $150? It has been credited to your account at the IRS as a tax payment for the year in which you performed the conversion. You will get a 1099-R for the year of the conversion that shows the amount withheld. Claim credit for the withholding on line 64 of your Form 1040 along with any withholding shown on your W-2. It will reduce the amount of tax you owe for the year or increase the amount of refund for the year.



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