recharacterize IRA contribution to Roth contribution followed by Roth conversion
Dear Alan et al,
I have a client who mistakenly made a non-deductible Traditional IRA contribution in Jan 2020 for the 2020 tax year. We would like to:
1. Recharacterize this $6K contribution to a Roth IRA contribution for 2020
2. Convert her remaining $22K pre-tax IRA balance over to her Roth IRA
My understanding is that, after Step #1 we’re free to move forward at any time with Step #2 and she would owe tax on the remaining $22K.
Does that sound right to you?
Thanks in advance,
Chris
Permalink Submitted by Alan - IRA critic on Fri, 2020-08-28 20:16
Yes, but be sure her income is not too high for a regular Roth contribution. Recharacterization will result in treating any gains on the 6000 contribution as Roth gains, and will also result in the contribution being a regular Roth contribution that can be withdrawn anytime without tax or penalty. Therefore, doing this in two steps as you indicated is preferable to omitting Step 1 and just converting the total IRA balance to Roth.