How late to re-characterize Roth IRA contributions?

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dred pirate
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How late to re-characterize Roth IRA contributions?

Post by dred pirate »

Long story short, if we find out we go over the Roth IRA income limit but have already contributed, what is the deadline to re-characterize the contributions to a traditional IRA? Depending on the status of some irons in the fire, I may have a windfall that could push me over the limit and I have already contributed about half the max so far this year. I know I can wait until I know, or just do the backdoor plan, but it is too late for that this year.

thanks
Topic Author
dred pirate
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Re: How late to re-characterize Roth IRA contributions?

Post by dred pirate »

edit - from a google search it looks like it is October of the following year - which is obviously plenty of time, as long as it is by April 15 - no sweat for me - I just wanted to make sure it would be in time for me to know what my income is.


Along this same conversation - going forward if I contribute to a a traditional IRA, can I just simply email Vanguard and re-characterize those contributions at a later date? Not sure how that would effect taxes on any of the income that was made.

thanks again
secondcor521
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Re: How late to re-characterize Roth IRA contributions?

Post by secondcor521 »

You're correct - the deadline for recharacterizations of IRA contributions is the filing deadline including extensions, so it typically would be 10/15 of the following year (so if you made an IRA contribution today, you'd have until 10/15/2022 to recharacterize it).

If you recharacterize either way, the earnings associated with the contribution will move with the contribution. Your IRA custodian will know how to do the proper calculations. Vanguard certainly knows how to do so.

A recharacterization generally means that it will be as though you originally made the contribution to the account that you recharacterized to, not the one to which you made the contribution.

You can't just email Vanguard. If your IRAs are there, they have a IRA recharacterization form to fill out.

https://investor.vanguard.com/ira/ira-r ... terization
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dred pirate
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Re: How late to re-characterize Roth IRA contributions?

Post by dred pirate »

secondcor521 wrote: Mon Jul 19, 2021 5:37 pm You're correct - the deadline for recharacterizations of IRA contributions is the filing deadline including extensions, so it typically would be 10/15 of the following year (so if you made an IRA contribution today, you'd have until 10/15/2022 to recharacterize it).

If you recharacterize either way, the earnings associated with the contribution will move with the contribution. Your IRA custodian will know how to do the proper calculations. Vanguard certainly knows how to do so.

A recharacterization generally means that it will be as though you originally made the contribution to the account that you recharacterized to, not the one to which you made the contribution.

You can't just email Vanguard. If your IRAs are there, they have a IRA recharacterization form to fill out.

https://investor.vanguard.com/ira/ira-r ... terization
I just I used "email" incorrectly, I meant using that form (I had to do one from an IRA to a Roth earlier this year simply because I clicked on the wrong account when I was contributing, but I did it only like 2 weeks later
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celia
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Re: How late to re-characterize Roth IRA contributions?

Post by celia »

dred pirate wrote: Mon Jul 19, 2021 5:19 pm Along this same conversation - going forward if I contribute to a a traditional IRA, can I just simply email Vanguard and re-characterize those contributions at a later date?
If you mean you want to give Vanguard authorization to recharacterize in the future, that won’t work. They are supposed to do transactions on the same day (if the markets are still open when they receive the request), else the next business day the markets are open.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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dred pirate
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Re: How late to re-characterize Roth IRA contributions?

Post by dred pirate »

I meant fill out the form at a later date - not asking them to do something in the future
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dodecahedron
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Re: How late to re-characterize Roth IRA contributions?

Post by dodecahedron »

celia wrote: Mon Jul 19, 2021 6:07 pm
dred pirate wrote: Mon Jul 19, 2021 5:19 pm Along this same conversation - going forward if I contribute to a a traditional IRA, can I just simply email Vanguard and re-characterize those contributions at a later date?
If you mean you want to give Vanguard authorization to recharacterize in the future, that won’t work. They are supposed to do transactions on the same day (if the markets are still open when they receive the request), else the next business day the markets are open.
Huh? In July 2020, I contributed to a Schwab tIRA for 2020. On March 22, 2021, well before market close, I uploaded Schwab's form to request a recharacterization to Roth via their secure interface (as my account rep had instructed me to do.)

72 hours later I still had not yet even gotten an autoreply acknowledgement of my request from Schwab, so I emailed my assigned Schwab financial consultant to inquire about its status. He emailed me back that he could see the uploaded form on his end but that "processing could take 7 to 10 days." It wound up taking considerably longer. On April 14, he called me to apologize for the delay and said that the recharacterization had finally gone through. My account history shows the recharacterization posted as a journal entry dated 4/15/21. So much for executing transactions "the same day." Anyway, it was before the deadline so it posed no issue for me.
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celia
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Re: How late to re-characterize Roth IRA contributions?

Post by celia »

dodecahedron wrote: Mon Jul 19, 2021 6:49 pm Huh? In July 2020, I contributed to a Schwab tIRA for 2020. On March 22, 2021, well before market close, I uploaded Schwab's form to request a recharacterization to Roth via their secure interface (as my account rep had instructed me to do.)

72 hours later I still had not yet even gotten an autoreply acknowledgement of my request from Schwab, so I emailed my assigned Schwab financial consultant to inquire about its status. He emailed me back that he could see the uploaded form on his end but that "processing could take 7 to 10 days." It wound up taking considerably longer. On April 14, he called me to apologize for the delay and said that the recharacterization had finally gone through. My account history shows the recharacterization posted as a journal entry dated 4/15/21. So much for executing transactions "the same day." Anyway, it was before the deadline so it posed no issue for me.
Sure, they can be overloaded near the end of tax season or at the end of the year. But I suspect they gave you the same prices as if it had been processed on the original date (especially for growth or loss to accompany the recharacterized amount). If the March 22 shares prices would be more favorable than the April 15 prices and they used April 15 prices, you can ask them to fix it.

This likely won’t change much for a Recharacterization, but a delayed Roth conversion, for example, will be more likely to accidentally use the delayed price.
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dodecahedron
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Re: How late to re-characterize Roth IRA contributions?

Post by dodecahedron »

celia wrote: Mon Jul 19, 2021 7:07 pm
dodecahedron wrote: Mon Jul 19, 2021 6:49 pm Huh? In July 2020, I contributed to a Schwab tIRA for 2020. On March 22, 2021, well before market close, I uploaded Schwab's form to request a recharacterization to Roth via their secure interface (as my account rep had instructed me to do.)

72 hours later I still had not yet even gotten an autoreply acknowledgement of my request from Schwab, so I emailed my assigned Schwab financial consultant to inquire about its status. He emailed me back that he could see the uploaded form on his end but that "processing could take 7 to 10 days." It wound up taking considerably longer. On April 14, he called me to apologize for the delay and said that the recharacterization had finally gone through. My account history shows the recharacterization posted as a journal entry dated 4/15/21. So much for executing transactions "the same day." Anyway, it was before the deadline so it posed no issue for me.
Sure, they can be overloaded near the end of tax season or at the end of the year. But I suspect they gave you the same prices as if it had been processed on the original date (especially for growth or loss to accompany the recharacterized amount). If the March 22 shares prices would be more favorable than the April 15 prices and they used April 15 prices, you can ask them to fix it.

This likely won’t change much for a Recharacterization, but a delayed Roth conversion, for example, will be more likely to accidentally use the delayed price.
There were no prices involved in the recharacterization so the delay in recharacterization and any intervening price changes made absolutely no difference. They simply journaled over all the accumulated shares in the tIRA account over to my Roth on April 15. (The only contents of the tIRA at the time were my original contribution and the accumulated auto-reinvested dividends thereon.)

My only concern was making sure it was done so I could finalize my tax return knowing everything was in order.
Alan S.
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Re: How late to re-characterize Roth IRA contributions?

Post by Alan S. »

dred pirate wrote: Mon Jul 19, 2021 5:16 pm Long story short, if we find out we go over the Roth IRA income limit but have already contributed, what is the deadline to re-characterize the contributions to a traditional IRA? Depending on the status of some irons in the fire, I may have a windfall that could push me over the limit and I have already contributed about half the max so far this year. I know I can wait until I know, or just do the backdoor plan, but it is too late for that this year.

thanks
To clean up some loose ends, the deadline to recharacterize a 2021 contribution is:
1) 10/17/2022 if you file your 2021 return by 4/15/22 OR file an extension by 4/15/22
2) 4/15/2022 if you did neither of the above

The 10/17 date is the "extended due date" (10/17 because 10/15 is on a Saturday), and you automatically qualify to use that date if you do either of the actions stated in 1) above.

Same rules apply for the return of contributions or excess contributions.

Finally, why did you say it is too late for a back door this year? It is not too late for a 2021 back door contribution, and if you met the above requirements it is not too late for a 2020 contribution either. To qualify to recharacterize any 2020 contribution, you must have filed your 2020 return or extension by 5/17/2021.
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Eagle33
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Re: How late to re-characterize Roth IRA contributions?

Post by Eagle33 »

dred pirate wrote: Mon Jul 19, 2021 5:46 pm I just I used "email" incorrectly, I meant using that form (I had to do one from an IRA to a Roth earlier this year simply because I clicked on the wrong account when I was contributing, but I did it only like 2 weeks later
Are you trying to recharacterize an already recharaterized contribution? Not sure if that is allowed.
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celia
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Re: How late to re-characterize Roth IRA contributions?

Post by celia »

Alan S. wrote: Mon Jul 19, 2021 7:26 pm …and if you met the above requirements it is not too late for a 2020 contribution either.
The deadline for 2020 contributions would have been May 17, 2021. Then Form 5498 reporting the contribution would have been mailed out by now.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Alan S.
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Re: How late to re-characterize Roth IRA contributions?

Post by Alan S. »

Not too late to recharacterize a 2020 contribution, obviously too late to make the contribution. The entire post (and thread) was meant to address recharacterization deadlines of contributions already made.
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