Recharacterization of a Recharacterization of IRA

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letter100
Posts: 2
Joined: Mon Apr 16, 2018 11:43 am

Recharacterization of a Recharacterization of IRA

Post by letter100 » Mon Apr 16, 2018 11:51 am

Hello.

I made a 2017 Roth Ira contribution in Jan 2017
Then in March 2017 I did re-characterization into 2017 regular IRA thinking that I could benefit from deduction on 2017 taxes
However, now doing the taxes realize that i can not deduct anything (401K and income make me not able to deduct). So its treated as nondeductible regular IRA. I did file the taxes with 8606 form.

The question: can i do a re-characterization of re characterization and have those money back into Roth IRA for 2017? Called Vanguard and they said that yes I can do it, but I am a bit hesitant. And even if i can do it then how do i file it, considering that I already filed and submitted my 2017 return?

Thanks!

Alan S.
Posts: 7809
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Recharacterization of a Recharacterization of IRA

Post by Alan S. » Mon Apr 16, 2018 7:39 pm

You CANNOT recharacterize an already recharacterized contribution per the following from p 31 of Pub 590 A:
Election can’t be changed. After the transfer has taken place, you can’t change your election to recharacterize.
However, you can still withdraw the contribution with allocated earnings up to 10/15/18 for a 2017 contribution. However, that will cause a problem because the earnings on your contribution will be taxable on your 2017 return and you already filed it. Therefore, you would have to amend it, include the earnings and 10% penalty on the earnings as well as making an explanatory statement that you made a Roth contribution, recharacterized it to TIRA, and then withdrew the recharacterized contribution. And you would also delete the 8606.

Of course, there is a small chance that you have a loss on the contribution, and if so that eliminates tax and penalty on the earnings.

If you do not have pre tax non Roth balances, you can simply convert the ND contribution to a Roth IRA, which would be beneficial. Otherwise, it is a choice between making no more transactions that effect 2017 or removing the excess contribution with earnings.

Finally, if you decide to remove the contribution, you also have ONE DAY to make a new 2017 Roth contribution. You can do that before removing the TIRA contribution but this opportunity ends tomorrow. You might consider a new Roth contribution if you cannot do the Roth conversion (a back door Roth) without paying taxes and decide to remove the TIRA contribution and file a 1040X.

letter100
Posts: 2
Joined: Mon Apr 16, 2018 11:43 am

Re: Recharacterization of a Recharacterization of IRA

Post by letter100 » Tue Apr 17, 2018 6:38 am

Thank you!
I do have pretax TIRA balances, so just converting ND to Roth will end up being taxable (some of it anyway).
So sounds like a too much headache in trying to do all this - I guess I will stick with no more 2017 transactions.
Thanks again!!

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