Made too much for Roth, but already contributed, next steps?

[royalewithcheese]

I contributed early 2016 for a Roth IRA. I'm a first year attending and between my trainee salary and new attending salary, I made too much to keep my Roth IRA. As far as the next steps go, does that mean I should convert to a traditional IRA, and then re-convert back to Roth IRA? (To avoid the 6% penalty).

And then in 2018, I can contribute to a traditional IRA for 2017 and then convert to Roth IRA again?

[jfoxcpacfp]

royalewithcheese wrote:

I contributed early 2016 for a Roth IRA. I’m a first year attending and between my trainee salary and new attending salary, I made too much to keep my Roth IRA. As far as the next steps go, does that mean I should convert to a traditional IRA, and then re-convert back to Roth IRA? (To avoid the 6% penalty).

And then in 2018, I can contribute to a traditional IRA for 2017 and then convert to Roth IRA again?

Click to expand...

You need to either withdraw the excess contribution by 4/18 or recharacterize it to a TIRA, which will be nondeductible. Don't wait - as the deadline nears, custodians are flooded with requests and the closer you get to 4/18, the higher the chance that you will miss the cutoff. You will report your nondeductible TIRA on page 1 of Form 8606 for 2016.

You won't be "reconverting" back to a Roth. You will be converting your TIRA to a Roth. This transaction will be reported on Form 8606 in year 2017 (or later if you wait).

Beginning 1/1/17, you can contribute to a TIRA and start the annual backdoor Roth tradition. In general, it is better to contribute sooner rather than later each year to put your money to work.

[royalewithcheese]

Thank you for that, makes much sense.

Follow up question: I contributed 5500 to the Roth earlier in the year, but it has since increased in value. Do I have to convert 5500 now to the IRA, or current value of that contribution. And then do I convert only 5500 back to Roth or the current value?

[jfoxcpacfp]

Yes, recharacterize the full amount to a TIRA. When you convert all of it to a Roth ("backdoor"), you will pay tax on the growth. If you leave the growth in the TIRA, further growth will be taxable, too. Better to get it all inside the Roth to start the tax-free growth.