Should we recharacterize our 2020 Roth IRA as tIRA?

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Topic Author
kurious
Posts: 81
Joined: Mon Nov 07, 2016 12:39 am

Should we recharacterize our 2020 Roth IRA as tIRA?

Post by kurious »

Hello Bogleheads,

Thank you in advance for your advice.

We are doing our taxes for 2020 and are wondering if we should recharacterize our Roth IRA for 2020 as tIRA. Following are the relevant details:

- Status: MFJ
- 22% federal income tax bracket + 5% state (MA)
- Combined Roth IRA of 12k in 2020
- Age: 34/33
- Resident aliens for tax purposes
- Turbotax gives us a tax refund of 1.5k in our current state (12k in Roth IRA)
- If we recharacterize the Roth to tIRA, the refund goes up to about 4k

Current Assets:
---------------------
His 401k - 120k
His Roth IRA - 33k
Her Roth IRA - 33k
Her tIRA - 60k
Taxable - 80k
CD - 40k

Future plans:

- We will return to our home country within the next 2-4 years
- Roth IRA will be 5 years old in 2023 meaning we can withdraw our contributions without penalties
- We are considering the following plan:
-- contribute to tIRA instead of Roth IRA in our remaining time here
-- once we leave the country, add the tIRA to the existing Roth IRA that will be 5+ years old by then, and take out some/whole of our contributions as needed
-- beyond that, we are still working on the details of whether to leave the money (401k, tIRA, Roth IRA, taxable) in the US or repatriate it or do a hybrid

Questions:

1. Should we recharacterize our Roth IRA contribution for 2020 to tIRA?
2. Should we contribute to tIRA moving forward?
Topic Author
kurious
Posts: 81
Joined: Mon Nov 07, 2016 12:39 am

Re: Should we recharacterize our 2020 Roth IRA as tIRA?

Post by kurious »

Bumping this up in hopes of a response
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FiveK
Posts: 10827
Joined: Sun Mar 16, 2014 2:43 pm

Re: Should we recharacterize our 2020 Roth IRA as tIRA?

Post by FiveK »

Traditional versus Roth is all about the marginal tax rate you would save now vs. what you expect to pay when withdrawing.

Lack of response to your post may be due to uncertainty over the tax rules you expect when you will be withdrawing.

Do you have an estimate of your marginal tax rate when you plan to be withdrawing from your traditional and Roth accounts?
Statz1964
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Joined: Sat Aug 26, 2017 4:34 pm

Re: Should we recharacterize our 2020 Roth IRA as tIRA?

Post by Statz1964 »

If I'm understanding, you're considering recharacterizing a Roth IRA to a tIRA. That is, moving money from your Roth IRA to a tIRA. The Tax Cuts and Jobs Act of 2017 banned recharacterizing the account balance of a Roth conversion back to a traditional IRA. Before that, you could convert tIRA to Roth IRA and then change your mind and recharacterize it back to the tIRA. I don't believe it's possible to move money from the Roth IRA to a tIRA.
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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Should we recharacterize our 2020 Roth IRA as tIRA?

Post by FiveK »

kurious wrote: Sun Jan 10, 2021 1:31 pm 1. Should we recharacterize our Roth IRA contribution for 2020 to tIRA?
Statz1964 wrote: Wed Jan 13, 2021 9:18 am If I'm understanding, you're considering recharacterizing a Roth IRA to a tIRA. That is, moving money from your Roth IRA to a tIRA. The Tax Cuts and Jobs Act of 2017 banned recharacterizing the account balance of a Roth conversion back to a traditional IRA.
Conversions may not be recharacterized, but recharacterizing contributions is still allowed.
Vanguard Fan 1367
Posts: 1883
Joined: Wed Feb 08, 2017 3:09 pm

Re: Should we recharacterize our 2020 Roth IRA as tIRA?

Post by Vanguard Fan 1367 »

Statz1964 wrote: Wed Jan 13, 2021 9:18 am If I'm understanding, you're considering recharacterizing a Roth IRA to a tIRA. That is, moving money from your Roth IRA to a tIRA. The Tax Cuts and Jobs Act of 2017 banned recharacterizing the account balance of a Roth conversion back to a traditional IRA. Before that, you could convert tIRA to Roth IRA and then change your mind and recharacterize it back to the tIRA. I don't believe it's possible to move money from the Roth IRA to a tIRA.
That is how I understand the advice given in other threads. It made it tougher to decide how much to convert to my Roth IRA.
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
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