Reversing/Undoing a ROTH IRA contribution

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lllsss
Posts: 4
Joined: Tue Jul 22, 2014 2:09 pm

Reversing/Undoing a ROTH IRA contribution

Post by lllsss » Wed Nov 07, 2018 5:09 pm

Hi all. My wife made a contribution this year (2018) before we were married to her ROTH IRA. Now that we are married, we will be over the income limit for 2018 to contribute to a ROTH. I'm wondering what the best way is to go about getting this fixed/corrected. The IRA is with TD, and it seems after a brief conversation with them, that I can fill out a form (Removal of Excess) in order to remove the excess contribution for the year, however, any gains/losses would be calculated on the entire account for the purposes of this form, even though the contribution has just sat and not been invested.

My end goal is to reverse the contribution and then go the backdoor IRA route.

Any advice would be much appreciated. Thank you.

kaneohe
Posts: 5097
Joined: Mon Sep 22, 2008 12:38 pm

Re: Reversing/Undoing a ROTH IRA contribution

Post by kaneohe » Wed Nov 07, 2018 5:17 pm

Why not just recharacterize the contribution from Roth to TIRA?

retiredjg
Posts: 34219
Joined: Thu Jan 10, 2008 12:56 pm

Re: Reversing/Undoing a ROTH IRA contribution

Post by retiredjg » Wed Nov 07, 2018 5:31 pm

lllsss wrote:
Wed Nov 07, 2018 5:09 pm
My end goal is to reverse the contribution and then go the backdoor IRA route.
First, be sure you really understand the back door. A lot of people mess it up.

Second, if you want to use the backdoor, just have your custodian re-characterize the Roth IRA contribution to a tIRA contribution. It's a do-over and it will be as if she had put the money into tiRA from the beginning. Then convert it (all of it) to Roth.

lllsss
Posts: 4
Joined: Tue Jul 22, 2014 2:09 pm

Re: Reversing/Undoing a ROTH IRA contribution

Post by lllsss » Wed Nov 07, 2018 5:56 pm

TIRA just being tradiational ira correct? Does the recharacterization apply to only the original contribution or any growth or loss since the contribution date as applied to the account as a whole? In other words, contribution of $5500, cash has not been invested but overall value of the account has increased by 10%. The form I have (and briefly skimming the pub - I believe it is 590a) seems to indicate it's the latter.

Also, re: understanding the backdoor ira, is that in reference to the impact on pretax versus post tax money of the conversion or something else?

Thanks!

retiredjg
Posts: 34219
Joined: Thu Jan 10, 2008 12:56 pm

Re: Reversing/Undoing a ROTH IRA contribution

Post by retiredjg » Wed Nov 07, 2018 6:07 pm

Yes. TIRA is traditional IRA.

They will re-characterize both the contributions and the earnings together. When it comes time to do the Roth conversion, just convert all of it and pay tax on the little bit extra.

About understanding the back door....many people don't realize that having another IRA on the side (including SEP IRA, SIMPLE IRA, rollover IRA - but not Roth IRA) will interfere with the back door.

Or they do a back door and then roll something into an IRA before the end of the year which completely messes things up.

We spend a lot of time helping people fix these mistakes.

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

Re: Reversing/Undoing a ROTH IRA contribution

Post by FiveK » Wed Nov 07, 2018 6:39 pm

Thus it can be a good idea to fill out a version of form 8606 now, based on what you expect to do, so you understand the effect of what you expect to do.

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