Recharacterizing Roth to Traditional-good move?

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Latestarter62
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Recharacterizing Roth to Traditional-good move?

Post by Latestarter62 »

My wife and I will have $68,846 in income in 2018. Our full-time college child will have about $11,400 earned income. The three of us have insurance through the ACA. To qualify, we would need a family income under 81,000. We just barely are under this number and potentially our child might earn a few more hundred. Further, I based our 2018 ACA eligibility on $68,000, not the 80,000+ it turned out to be.

My wife and I maxed the Roth IRAs at $6500 each. I'm thinking of having one Roth's $6500 2018 contribution recharacterized to a Traditional IRA. This would help get the income closer to my ACA estimate, and avoid potentially losing the subsidy for the year. Plus, we would have an adjusted gross inc of just under $63,000 qualifying us for the taxsaver credit of 10% of contributions placed in retirement accounts. Is the recharacterization a good move for us? Thanks.
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FiveK
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Re: Recharacterizing Roth to Traditional-good move?

Post by FiveK »

Latestarter62 wrote: Mon Dec 10, 2018 6:38 pm My wife and I will have $68,846 in income in 2018. Our full-time college child will have about $11,400 earned income.
Assuming you provided >1/2 the child's support the child is your dependent. If the $11,400 is the only income, the child does not have to file and thus you don't include the child's income when calculating the Premium Tax Credit. See chart B in https://apps.irs.gov/app/vita/content/g ... d_4012.pdf and instructions for line 2b in https://www.irs.gov/pub/irs-pdf/i8962.pdf.
The three of us have insurance through the ACA. To qualify, we would need a family income under 81,000. We just barely are under this number and potentially our child might earn a few more hundred.
$81,680 if you live in the 48 states. Gives you $680 more breathing room if needed. See p. 7 of https://www.irs.gov/pub/irs-pdf/i8962.pdf.
Further, I based our 2018 ACA eligibility on $68,000, not the 80,000+ it turned out to be.

My wife and I maxed the Roth IRAs at $6500 each. I'm thinking of having one Roth's $6500 2018 contribution recharacterized to a Traditional IRA. This would help get the income closer to my ACA estimate, and avoid potentially losing the subsidy for the year. Plus, we would have an adjusted gross inc of just under $63,000 qualifying us for the taxsaver credit of 10% of contributions placed in retirement accounts. Is the recharacterization a good move for us? Thanks.
Depending on specific costs, you may be at the $2600 maximum repayment limit whether you make a $6500 deductible contribution or not. But if your AGI<300% FPL, the maximum repayment limit drops from $2600 to $1550.

Doing some "what if...?" scenarios in commercial tax software for exact numbers may be worthwhile. Rangefinding estimates using the personal finance toolbox spreadsheet may help you get close. E.g., for $68,846 gross income, no dependent AGI added for Form 8962 purposes, $18K/yr for each of SLCSP, premiums, and APTC, and $1500 traditional IRA contribution from one spouse, the marginal rate for the other spouse's tIRA contribution is
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That would make recharacterizations of (at least a part of) both spouses' contributions a very good idea. You should use your actual numbers to see the impact on your situation.
Topic Author
Latestarter62
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Joined: Wed Nov 21, 2018 6:06 pm
Location: USA

Re: Recharacterizing Roth to Traditional-good move?

Post by Latestarter62 »

Thanks for your response FiveK. I somehow had missed the fact that if my dependent is not required to file then the income doesn't count for ACA eligibility.
terran
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Re: Recharacterizing Roth to Traditional-good move?

Post by terran »

Also note that you can recharacterize any time up until your tax filing deadline, so you may as well wait and see how everything shakes out once you have all your W2's and 1099's and tax forms are finalized.
Topic Author
Latestarter62
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Joined: Wed Nov 21, 2018 6:06 pm
Location: USA

Re: Recharacterizing Roth to Traditional-good move?

Post by Latestarter62 »

Good point, Terran. Thanks.
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