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Learning, Sharing, and Teaching => Taxes => Topic started by: jakubdudek on June 05, 2018, 01:43:48 PM

Title: Roth excess contribution question
Post by: jakubdudek on June 05, 2018, 01:43:48 PM
I have filed for an extension on my taxes this year, so i am currently still working on my return,  Here is my situation regarding my Roth IRA.

I've contributed to the ROTH over 2017 but my income for 2017 has ended up too high so that i now have to remove this money as an excess contribution.  I would like to know if i can do the following:

remove the excess contribution and deposit it into a traditional IRA, as a post tax contribution.
Convert that traditional IRA back into the ROTH (backdoor ira) and effectively get me back to where i started with my ROTH contributions.

if the above makes sense, the follow up question is: can i do all this in the context of the 2017 tax return, for which i have filed for an extension.

thanks!
Title: Re: Roth excess contribution question
Post by: secondcor521 on June 05, 2018, 02:46:55 PM
You can either remove the excess 2017 contribution or recharacterize the 2017 contribution to a traditional IRA.

If you remove the excess contribution, you cannot contribute it to an IRA for 2017 because the contribution deadline was April 17, 2018.  Extensions to file don't extend the contribution deadline (cite:  https://www.irs.gov/retirement-plans/traditional-and-roth-iras).  If you have earned income in 2018 and meet the other qualifications, you could take the excess contribution and make a 2018 contribution to an IRA.

If you recharacterize the contribution to a traditional IRA, you can then subsequently convert any of that traditional IRA to a Roth IRA.  You will owe income taxes plus a 10% penalty on any earnings attributable to that amount between the time of the original contribution and the date of conversion - this is calculated on Form 8606.  You will also owe ordinary income taxes on a pro-rata portion of the converted amounts if you have any traditional IRAs for which you have deducted contributions in the past.  This is true even if you have segregated your deductible and non-deductible IRAs, and is also true even if the IRAs are at different custodians.
Title: Re: Roth excess contribution question
Post by: Rocketman on June 14, 2018, 07:41:38 PM
This happened to us last year - figured out the taxes as soon as I could because I suspected we might be over the limit - we were...

A call to vanguard- then another during trading hours and it was all taken care of. I will have a 1099-R income in 2018 for the gains we had last year.

Not a big deal -