Can a Recharacterization be over the limit ?
Early in 2007 I made deposits of $5000 in both my wife an my Roth IRA (we are both over 50) for tax year 2007. In Jan 2008 I realized that we had exceed out MAGI limit so I instructed the holder of thes accounts to recharacterize them as regular IRA deposit. The $5000 plus profits were recharacterized for both account into our own unique traditional IRA accounts
Turbo Tax now say the profit amount is an excess contribution and will be reported on form 5329. Plus I will be subject to penalties until both my wife and I withdraw the profit amounts.
This just does not seem right to me.
Permalink Submitted by Alan Spross on Mon, 2008-04-07 04:20
You are making an incorrect entry into Ttax to get this result. This is the result you would get if you are in the phaseout range and corrected the contribution by distributing the excess contribution and earnings. The earnings would be taxable and create another much smaller excess contribution.
But this should not happen when you recharacterize to a TIRA because the earnings are not distributed, but transferred to the TIRA along with the contribution. Re check your Ttax entries to attempt to get to where recharacterized contributions are entered rather than excess contributions corrected by distribution.
Permalink Submitted by Jack Patteeuw on Mon, 2008-04-07 09:40
Discussions with a friend made me realize that the amount being recharacterized should [b]NOT[/b] include the profit.
This make TurboTax happy, I hope it will make the IRS happy also.