Converting Roth to Traditional and back again...

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
bot
Posts: 2
Joined: Mon Dec 23, 2013 1:17 pm

Converting Roth to Traditional and back again...

Post by bot »

So I contributed $5500 to a Roth IRA earlier this year for 2013 thinking I would give my money more time to work for me. Of course, at the end of the this year I realized after bonuses my salary was too high and needed to remove my excess contribution. I thought, no problem I'll just convert my Roth into a Traditional IRA and then convert immediately back via the backdoor. So I called Vanguard and they "recharacterized" my excess contribution into a newly opened Traditional IRA. The following day I call back and they say "Nope, sorry we can't do anything about this until after the new year. Recharacterizations cannot be undone until after x amount of time or the new year, whichever comes last". [(removed) --admin LadyGeek] :oops:

By backdoor-rothing this money in 2014 am I setting myself up for any tax pitfalls/complications? Also, if I go ahead and contribute another $5500 (non-deductible) for my 2014 IRA contribution into that same traditional IRA would I just be able to convert the whole $11000+ over at once? Was there some better way remove that excess contribution that did not involve recharacterization?. Thoughts?

Personal finance is really fun, even when I [mess it up --admin LadyGeek] (a little).
Alan S.
Posts: 10529
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Converting Roth to Traditional and back again...

Post by Alan S. »

Either the Vanguard rep is poorly trained or your terminology confused the rep. The terminology used in your post title is incorrect. since you recharacterized the contribution, you didn't convert it. "Conversion" only means the movement of funds from a non Roth IRA to a Roth IRA.

There is no waiting period to convert a recharacterized regular contribution, but there is to reconvert a recharacterized conversion. You wanted to do the former and it should have been allowed. If you are sure of the tax implications of your conversion (particularly if you have any other non Roth IRA accounts) you might try again. But if your conversion will be tax free because all you are doing is converting non deductible contributions, there is no harm in waiting to 2014 other than your contribution may generate some earnings which would be taxable. If you wait and have the money to make your 2014 contribution as well, you could make that contribution and then convert both years non deductible TIRA contributions to a Roth. The value in excess of 11k will be taxable.

There was not a better way to handle this, although you could have requested a return of your Roth contribution and then re contributed it as a TIRA contribution. If you had any earnings on the contribution, they would be taxed and penalized. With recharacterization and conversion you still are taxed on the gains, but there is no penalty due.
Post Reply