Author Topic: IRA Recharacterization  (Read 1225 times)

405programmer

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IRA Recharacterization
« on: October 19, 2016, 04:24:30 PM »
Hey forum!

Earlier this year I contributed the $5500 maximum contribution to my traditional IRA with Vanguard. Then around summer I took a new job making considerably more money than before. So now for the tax year 2016 I made too much to be able to deduct the contribution to my traditional IRA. But my income is still low enough that I can contribute to a Roth IRA. I found the recharacterization for from Vanguard here: [https://personal.vanguard.com/pdf/s220.pdf][/https://personal.vanguard.com/pdf/s220.pdf].

My question for the forum is how on earth do I calculate the amount I can recharacterize with the various gains throughout the year? Can I recharacterize $5500? Or can I only recharacterize 5500 - (5500 * 0.06) where 6% is my rough gain YTD?

Also am I correct in thinking that it's a better idea to put my money in the Roth when I lose the ability to deduct the IRA contribution?

I totally understand if no one feels inclined to google for me but I thought I might try out the hive mind because my google-fu fell short this time around.

MDM

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Re: IRA Recharacterization
« Reply #1 on: October 19, 2016, 05:42:01 PM »
See Bogleheads The recharacterization allows you to treat the contribution as if it was made to the correct type of IRA in the first place.

Quote
Also am I correct in thinking that it's a better idea to put my money in the Roth when I lose the ability to deduct the IRA contribution?
Yes.

Ebrat

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Re: IRA Recharacterization
« Reply #2 on: October 20, 2016, 12:00:03 AM »
When I recharacterized an IRA contribution at Vanguard a couple years ago, I just called them up and told them what I wanted to do, and they did all the paperwork and everything. You can recharacterize the whole $5500.

405programmer

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Re: IRA Recharacterization
« Reply #3 on: October 20, 2016, 06:47:32 AM »
Thank you both very much! I'll give Vanguard a call today.

charis

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Re: IRA Recharacterization
« Reply #4 on: October 20, 2016, 07:44:08 AM »
I did a recharacterization with Vanguard from Roth to traditional and it was pretty simple.  My only hiccup with that I did the recharacterization in January 2015 (for the 2014 tax year) and Vanguard did not report this to the IRS on their 2014 forms.  So I got a letter from them this year :(