Author Topic: Would you recharacterize your Roth IRA?  (Read 1595 times)

ender

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Would you recharacterize your Roth IRA?
« on: September 20, 2014, 07:56:17 AM »
This year, my income is going to be just under the limits for deducting an IRA. I will have, after 401k/HSA deductions from my income likely between 55-60k in modified AGI which is just under the 60k full deduction limit.

I put $5500 into my Roth IRA in January of this year. I've a mix currently of traditional/Roth/taxable investments right now.

Because I hopefully am going to have a family in the next few years I am pretty strongly considering recharacterizing this into a traditional IRA for a few reasons. With my income and discussions with the SO, if we end up with a few kids our marginal federal rate is going to be pretty low (unless I get ridiculous raises in that time period). It's likely in the next years we are going to have available space in either IRAs/401ks, too.

Recharacterizing would result in about a 30% tax savings, so about $1500.

Am I missing something or is this just a no-brainer? If I call Vanguard will they be able to separate the deductible part from my Roth IRA (I have contributed for several years now) into a traditional IRA?

ender

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Re: Would you recharacterize your Roth IRA?
« Reply #1 on: September 20, 2014, 08:39:04 PM »
Yes, I would absolutely recharacterize the contributions.  I've done it twice with Vanguard.  It is a very easy process that can be handled over the phone.  They will transfer however much you want (in your case, the full $5500), plus the gains/losses on that amount.  It will be as if you originally put that money into a TIRA at the beginning of the year.

Sweet, I think I will do this then. I didn't realize it would be that easy, too.

frugaliknowit

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Re: Would you recharacterize your Roth IRA?
« Reply #2 on: September 21, 2014, 06:33:29 PM »
"Recharacterizing would result in about a 30% tax savings, so about $1500".

Correction:  It is a tax deferral, not a savings.

ender

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Re: Would you recharacterize your Roth IRA?
« Reply #3 on: September 21, 2014, 07:45:20 PM »
"Recharacterizing would result in about a 30% tax savings, so about $1500".

Correction:  It is a tax deferral, not a savings.

Good point.

In my case it's more of a "loan" of the tax deferral as the money is far more useful to me in my younger years than my later years, when I'm hopefully in a place where I've basically FIREd :)