Overcontributed to 2015 Roth - what now

[bonehead]

I have been making yearly Roth IRA contributions throughout residency.   This past fall, I finally started work as an attending physician.  My problem is that that I have already contributed my full $5500 early on in 2015, and I realized only after the new year passed that I exceeded the income limits for a standard Roth.  I'm trying to avoid the penalty, so my question is if I can recharacterize these funds as a backdoor Roth for 2015?  If so, should I take any additional steps aside from the what I normally would do for a backdoor Roth (transfer $ into traditional IRA, wait a day, then back into the Roth account)?

 

Thanks

 

[Hatton]

I did something similar one year in a SEP/IRA.  I would get some advice from a CPA.  It turned out to be no big deal for me.

[scbunker]

bonehead wrote:

I’m trying to avoid the penalty...

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Will there even be a penalty? Isn't the penalty only on earnings, and aren't most things down in the last year?

 

[slurpieman]

Bonehead,

I am assuming that you mean that your income was too high for a Roth contribution? Not that you "overcontributed" per se.

But to answer your question, you have up to April 15th 2016, or even October 2016 (if you file for extension) to re-characterize a 2015 contribution. No extra steps.

After you re-characterize the contribution as a regular tIRA contribution, you can then convert it to a Roth. You may be paying some taxes on the conversion, as you probably had some gains on the $5500 that you put it, unless of course it was sitting in a money market fund or something.

[jfoxcpacfp]

All you have to do is ask your custodian to re-code your contribution to a TIRA. It is a simple keystroke. I would do it asap so that you can (hopefully) get correct forms. If not, just make sure they make the correction in their system. This is not a recharacterization, fyi, and there is no need to see a CPA just for this if you are already DIY.

[bonehead]

Thanks for all the replies.  I called Vanguard and explained the situation, and they were helpful in transferring the market weighted contribution back to the tIRA.  FWIW, I asked them about recoding, and they called it a recharacterization.  I'll have to call back after at least a day to complete the backdoor transfer into the Roth.

[jfoxcpacfp]

Glad it worked out. As WCI has pointed out, the terminology is often misused on all of the descriptions. What you did may be loosely referred to as a recharacterization, but not in the strictest sense of the word. What matters is that you accomplished mission with a quick phone call.

[Toshi]

Speaking of oft-misused terminology, IRA actually stands for Individual Retirement Arrangement, not Account.

https://www.irs.gov/pub/irs-pdf/p590a.pdf <-- see it directly from the horse's mouth, as it were

[jfoxcpacfp]

Toshi wrote:

Speaking of oft-misused terminology, IRA actually stands for Individual Retirement Arrangement, not Account.

https://www.irs.gov/pub/irs-pdf/p590a.pdf <– see it directly from the horse’s mouth, as it were

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Lol and we often say "IRA Account" - I'm just as guilty.