Hi everyone,
I have some questions for the group.
In 2013 I rolled over some old 401ks for my wife and I into traditional IRAs with Vanguard. Then, I made normal contributions with money that had already been taxed to each of our accounts. I did this for one year (2013). I was thinking that we would be able to deduct this money come tax time, but it turns out I was wrong. Our gross income was too high. As a result our IRAs are now a hodge podge of taxed money and untaxed money.
As a result, whenever we start taking our required minimum distributions in our golden years, we could be paying taxes on whatever % that $5,500 grows to be. And incorrectly so.
I have three options here
1) Keep track of the $5,500 until our IRAs run out or we pass through the pearly gates and inform the IRA that a certain % of that balance is in fact not taxable
2) Say "Screw it" and tell ourselves that the $5,500 will likely be a small percentage of the greater balance that the IRS assesses whenever we reach 59 1/2
3) Recharacterize the IRA contribrtion with Vanguard as a Roth IRA contribution (we also each have one of those). Vanguard figures out how much the $5,500 is worth now, moves it to the Roth IRA, and supposedly makes the situation like it never happened at all. All I have to do is file an amendment with the IRS.
I'm thinking #3 is at least worth a shot.
Has anyone ever done this? Assuming I can, what do I need to do to file an amendment? What forms do I need?
I have an accountant I can work with but I might have to end up paying him. I'd prefer to do it all on my own if possible, which is what I need assistance on.
Any help would be GREATLY appreciated. Part of taking personal responsibility for our finances means making a mistake or two. Just remember if your adjusted gross income is over a certain amount you can't deduct a contribution to a tax deferred account with money that has already been taxed!
Thanks everybody --
Will