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Incorrect Roth Contribution Plan

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  • Incorrect Roth Contribution Plan

    I got married at the end of 2016, but didn't realize that for my wife and I, our marriage made us ineligible for Roth IRA contributions in 2016 (based on our incomes). Unfortunately, we each contributed to our Roth IRAs in 2016, filed our tax returns like we normally would have, and now are unsure of what to do.

    My tentative plan is as follows:

    1) "Recharacterize" these Roth contributions into nondeductible Traditional IRA contributions, so we don't miss out on IRA contributions for the year. I believe this will require us to file a tax amendment before October. I do not believe there is a tax burden associated with this (since it is nondeductible), but correct me if I am wrong.

    2) Then, in the near future, I hope to backdoor these into Roth IRAs, since I prefer the Roth over Traditional. I believe we will then have to file an additional tax form in 2017 for this conversion. Then I assume I pay capital gains taxes on whatever I earned (not so much, if any).

    I have read a lot, but it is all kind of confusing and I feel like I may be skipping steps or ignoring tax burdens. I wanted to see if anyone had thoughts or experience on the topic. Appreciate the help in advance!

  • #2

    1. Correct. You have until 10/15/17 to recharacterize. Because you did not file for an extension, you will also owe a 6% penalty.

      • You will need to file a Form 8606 for 2016, which can be filed as a standalone form (no need to amend your 1040).



    2. Next step is to convert to a Roth IRA and pay tax on any growth in the account. You will report this on Form 8606 filed with your 2017 Form 1040.

    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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