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Recharacterization of Roth IRA contributions for 2022 and 2023

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  • Recharacterization of Roth IRA contributions for 2022 and 2023

    I contributed $6000 to my Roth IRA in 2022 and have already contributed $2000 to the Roth IRA in 2023. I made/will make above the income limit for 2022 and 2023 and will need to recharacterize both contributions. However, I have a pre-existing SEP that I plan to roll over into a solo 401-K that I will set up when I start a 1099 position later this year so I won't be able to do the "backdoor" roth in 2022.

    I was wondering if I should first recharacterize the 2022 contribution of $6000 and then do the backdoor roth for 2023 with that same money once the SEP is rolled over? How should I handle the excess of roth IRA contribution of $2000 for 2023?

  • #2
    Recharacterize both 2022 and 2023 contributions back to traditional. You’ll still have $4500 left to contribute for your 2023 tIRA. Conversions are attributed to the calendar year so converting your 22/23 contributions to Roth is a 2023 transaction for tax purposes. As long as you get your SEP rolled over into your i401k by 12/31/23 you won’t be subject to the pro-rata tax.

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    • #3
      While you can recharacterize IRA contributions, as of 2018 it is no longer possible to recharacterize Roth conversions.

      You should not do Roth conversions until after you have; adopted a one-participant 401k, rolled over pre-tax balances in all traditional SEP and SIMPLE IRA accounts and verified the rollover completion.

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      • #4
        Originally posted by GasFIRE
        Recharacterize both 2022 and 2023 contributions back to traditional. You’ll still have $4500 left to contribute for your 2023 tIRA. Conversions are attributed to the calendar year so converting your 22/23 contributions to Roth is a 2023 transaction for tax purposes. As long as you get your SEP rolled over into your i401k by 12/31/23 you won’t be subject to the pro-rata tax.
        Thanks. Assuming I get rid of the SEP money by the end of the year, would I be able to add additional funds to the non-deductible traditional IRA (plus the 2023 and 2023 recharacterizations) such that I can convert the $12,000 from the traditional IRA to the Roth IRA this year?

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        • #5
          WCICON24 EarlyBird
          This year's IRA limit is $6.5K so you can actually convert $12.5K by the end of this year. I recommend following spiritrider 's suggestion to open your i401k first before doing the conversion.

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