The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: chasethechief77 on February 20, 2017, 08:06:59 AM
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Got Married this year, so neither of us qualifies (income constraint) to directly deposit into a roth IRA
one of us (sigh...) deposited directly into a roth instead of executing a back door roth..... I know we can re-characterize that deposit from a roth into a traditional IRA, and that this is normal corrective action when one overdeposits, etc, etc
... however it seems to me that we can no longer complete a backdoor roth as the re-characterization form states that you cant convert (perform a backdoor roth) in the same year as a re-characterization..... So my question is this: Now that the mistake is made what is our best course of action?
-do we invest the money in the traditional IRA? then convert to a roth next year and pay taxes on the gain?
-do we not invest the money in the traditional IRA?
-is there some backdoor conversion im not aware of that can still be done this tax year?
-anything else im not thinking of?
thanks!
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My understanding is there's a waiting period to reconvert a recharacterized conversion, but not to convert a recharacterized contribution. See the difference?
In other words, you can't do (without waiting): Traditional IRA contribition -> convert to Roth IRA -> recharacterize back to Traditional IRA -> reconvert back to Roth IRA.
But you can do Roth IRA contribution -> recharacterize to Traditional IRA -> convert back to Roth IRA.
However, I will admit this is not exactly the easiest thing in the world to parse, so I could be wrong. Here's someone who agrees with me: https://www.bogleheads.org/forum/viewtopic.php?t=159069
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I rolled a 401k over to a Roth in 2015, and while doing my taxes have discovered that I'm getting tagged for that. I was completely ignorant to the fact that it would be taxed. I'm looking into my options right now, but it doesn't seem that great. The one saving grace is that I have educational credits to reduce what I owe.
I'll be watching this thread for advice. Sorry I can't help more, and sorry for the misfortune, I hope it turns out better than worse for you.
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thanks Nothlit, you've made my day!
hashbrowns, sounds like you should seriously consider recharacterizing to a traditional IRA to avoid the tax.
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I've already paid taxes on it, and I've spent nearly all of it on ETFs. I don't know if I can. This was a big ol knife in my mustache.
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I've already paid taxes on it, and I've spent nearly all of it on ETFs. I don't know if I can. This was a big ol knife in my mustache.
It is, sadly, too late to undo this. Recharacterizations can only be done up to the tax filing deadline (with extensions if filed).