Sigh did I screw up my IRA contribution?

[hownowbrowncow]

Hello all,

I may have made a costly although not devastating mistake with my IRA contributions due to my ignorance.  I wonder if a) did I truly make a mistake? b) if so, any way to fix it?

The gist:

Single filer, no dependents. Renter so don't itemize. 

My gross wages for 2014 will be range from $86,050 (if I get no more overtime) to a max of  $86,500 (best guess things are pretty quiet at this point so not anticipating much OT).  I will be maxing out my 401k at $17.5k and contributed $100 to my FSA (fortunate to have banging insurance so that money goes to co-pays, OTC meds and sunscreen and still have $21 left for 2014)

I also have $803 in LT gains from taxable stock sale, $5 in ST gains from taxable stock sale, and $69 in student loan interest paid (paid off student loan in Q1).

Problem:
I can't find a clear answer in my searching to my MAGI and IRA situation.  Without thinking it through, I put $5.5k in a Roth IRA in July.  Now I realize I could have put a portion into a traditional IRA and lowered my taxable income?  I would be a lot less confused if I could find a simple  table for calculating MAGI but everything I read about what to add back just confuses me more.

What can/should I do? 

[Franklin]

I don't think it's that big a deal.  Recharacterize your Roth contribution to a Traditional, then convert it back to a Roth.  There is no MAGI limit for a conversion from Traditional to Roth.  Your IRA holder should be able to do everything the same day.

Two things to keep in mind - when you do your taxes you will report the traditional IRA contribution as non-deductible so that it qualifies for the conversion back to Roth, and you'll owe taxes on any appreciation from your original Roth contribution in July.

[epipenguin]

Personally, I'd do nothing. I'd rather have the money in a Roth. Once you retire, you can take it out tax free, and there are no RMDs. You will already have a lot of money in a traditional IRA (made up of your 401k rolled over to an IRA) or still in your 401k, so I'd think the "tax diversification" of also having money in a Roth would be good. The deal is you either pay tax on it now, or tax when you take it out. Yes, we hope to be in a lower tax bracket in retirement, but really, you're talking a few hundred bucks here, AND if you do end up needing to take RMDs, that could bump up your tax in retirement.

You could recharacterize a portion of your Roth contribution as a traditional IRA but I would wait until next year [Edit: up to April 15th] to do that so you know exactly what your MAGI is, and exactly how much you are eligible to contribute. It is pretty easy to do, but call up your IRA custodian so they can walk you through it on the phone. I don't know that I'd convert back to a Roth though - I'd do that if you were recharacterizing because you earned too much to qualify for a Roth, not because you earned a low enough income to qualify for a Traditional (deductible) IRA.

[DK]

I typically wait until I file my taxes to determine what to put in my Roth vs tIRA. I should probably try to figure out how to estimate better so I don't lose out on a year of gains (well, hopefully gains through the year). I've moved from a job with a bonus, to one without, so that should definitely help me plan out better what I can do.

I'm assuming what you are trying to do is put as much in the tIRA as you can to get a deduction, and put the rest into the roth.