Newlywed IRA recharacterization & conversion

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PolarBearMarket
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Joined: Thu Sep 13, 2018 11:52 am

Newlywed IRA recharacterization & conversion

Post by PolarBearMarket » Wed Oct 10, 2018 2:01 pm

Hi all - really appreciate the advice we've gotten on this forum.

My wife and I married this year. We have both contributed the maximum to our IRAs already: I contributed to a Traditional IRA and conducted a backdoor Roth conversion, she contributed directly to a Roth IRA. Prior to our marriage, I was ineligible to contribute to a Roth and the traditional IRA contribution would have been non-deductible because my MAGI is too high. Her income was low enough to contribute to a Roth (she is in business school). Our combined income is too high to contribute to a Roth filing jointly, and also still too high to claim a deduction for traditional contributions.

My sense is that if we file jointly, she will need to re-characterize her IRA contribution from Roth to Traditional. We then should convert her Traditional contribution back to Roth. Is that accurate? It feels pretty circular.

retiredjg
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Re: Newlywed IRA recharacterization & conversion

Post by retiredjg » Wed Oct 10, 2018 2:42 pm

Sounds to me exactly what you need to do.

When she recharacterizes, some earnings may come back with the contribution. Just go ahead and convert that to Roth as well. A little bit in tax might be due.

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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Newlywed IRA recharacterization & conversion

Post by FiveK » Wed Oct 10, 2018 7:40 pm

PolarBearMarket wrote:
Wed Oct 10, 2018 2:01 pm
It feels pretty circular.
Because it is circular. :)

It's also the right way to do it, assuming she has no pre-tax IRA balance from previous years.

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Newlywed IRA recharacterization & conversion

Post by megabad » Thu Oct 11, 2018 2:07 pm

FiveK wrote:
Wed Oct 10, 2018 7:40 pm
PolarBearMarket wrote:
Wed Oct 10, 2018 2:01 pm
It feels pretty circular.
Because it is circular. :)

It's also the right way to do it, assuming she has no pre-tax IRA balance from previous years.
Haha. I would add that you should be congratulated for being a couple of newlyweds who were already both contributing aggressively to your Roth IRAs.

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