Should I reverse Roth IRA contributions

[growingstaches]

I've been reading the madfientist on the subject of Roth IRA vs Traditional IRA.    He points out that for a RE person it may be more beneficial to contribute to Traditional IRA.   This is primarily due to lower income in retirement, and the ability to convert and utilize the Roth pipelining strategy.

Here is my dilemma.  With my situation I believe he is right.   I've been contributing the max to the Roth for myself and DW for the last 8 years.    The 401k's balances are healthy, but never maxed out in any given year.

Family income this year will be 140k.    Should I reverse the $11,000 2013 Roth contribution, and instead contribute it to a Traditional IRA?   I would then make future year contributions to the Traditional as well.

I believe reversing will cause a tax hit because of the gains this year, but difficult for me to calculate how much.

- growingstaches

[matchewed]

Why cause all that extra work and frustration? If you feel maxing out a 401k is more advantageous then just make sure you do it next year. One year shouldn't make too much of a difference.

That aside at 140k income why can't you make it a goal to do both?

[Khan]

Why cause all that extra work and frustration? If you feel maxing out a 401k is more advantageous then just make sure you do it next year. One year shouldn't make too much of a difference.

That aside at 140k income why can't you make it a goal to do both?

I second this, one year doesn't make much of a difference. On top of that, the ROTH IRA money still lends you some flexibility in the future.

[CB]

You can recharacterize this year's Roth contribution to a Traditional IRA (and vice-versa) with no tax consequences.  It's much easier if you do it before you file your 2013 taxes, but you have plenty of time.

We're going to be doing the same thing (already put $11k into the Roths January of this year) in February/March 2014 once I have all of our tax forms.  I'm hoping to recharacterize just enough to lower our federal tax bill to $0.

[michaelrecycles]

OP, I similarly had already contributed the max to a Roth for 2013. One call to Vanguard made it very easy. They calculated any gains and moved those over from the Roth to the Traditional, along with the contributions. It's as if I had never contributed to the Roth for the year and intended it to go into the Traditional all along. The only difference is they will send some additional forms that I will have to use when filing.

However, if you feel this complicates things too much, I agree with the other posters' view to just do it moving forward and not look back. I also agree that you should try to max your 401ks, especially given that income level and the fact that you are capable of maxing the Roth.

[TLV]

With 140k in income, you may be past the phase-out limits for traditional IRA deductibility. If you can't deduct it now, Roth IRA is probably better than traditional.

Edit: But you should definitely try to max the 401ks.

[dragoncar]

Fifth for maxing out 401k.  Get that AGI down stat.

[growingstaches]

Thanks for all the replies.

My plan for 2014 is full contribution to my 401k with a maxed out IRA for each of us.   I can thank this blog for giving us the inspiration to do it.  I know it can be done.

The basis for the original question was to try and lower the 2013 AGI even further, by recharacterizing the Roth to a Traditional.

It seems like the burden of opening 2 new accounts and doing recharacterizations is not worth the hassle.   This would require opening more new Fidelity accounts to accept it.  I now understand the beneficial ownership structure of Vanguard and want to convert all my accounts over.   Starting more accounts at Fidelity would just require even more payments to close them eventually.

Thanks again for all the replies.   I'm going to be writing our detailed case study soon. 

- growingstaches