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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: 405programmer on October 19, 2016, 04:24:30 PM

Title: IRA Recharacterization
Post by: 405programmer 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.

Title: Re: IRA Recharacterization
Post by: MDM 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 (https://www.bogleheads.org/wiki/IRA_recharacterization).

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.

Title: Re: IRA Recharacterization
Post by: Ebrat 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.

Title: Re: IRA Recharacterization
Post by: 405programmer on October 20, 2016, 06:47:32 AM

Thank you both very much! I'll give Vanguard a call today.

Title: Re: IRA Recharacterization
Post by: charis 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 :(