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Roth Screw-Up

My income is too high to contribute to a Roth IRA and I can't deduct traditional IRA contributions. So instead, I contribute to a traditional IRA and immediately convert it to Roth. That's pretty straightforward. I'm sure plenty of people do that, too.

Unfortunately, I accidentally contributed directly to my Roth IRA this year. So I think I have 2 options for correcting this mistake. 1) Recharacterize the contribution as a traditional IRA contribution and then convert it back to Roth. 2) Withdraw the contribution as an excess contribution and then start the whole process over again.

Is there any real difference between these two options? Will one result in more or less paperwork? Or is it essentially the same thing either way?

Thanks in advance, Bill

Reply to
Bill Woessner
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First, let's be clear. You have no pre-tax IRA money, right? If you, you know the immediate conversion gets prorated between pre and post tax money...

What's "this year"? 2012? Yes, you need to recharacterize as non-deductible Traditional IRA. If it was 2011 deposit, that's it, it's a 2011 IRA deposit. The Roth conversion part is done second, and takes place this year along with your 2012 conversion (if you wish.)

Your screw-up will cost you a bit of paperwork, nothing more. You want screw-ups?

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is my article on how 'not' to handle an IRA inheritance. The cost was huge. $40K or so. Speaking of you, I'd wait 30 days before doing the (back to) Roth conversion. I'm not 100% on that, but it can't hurt.

/Joe

Reply to
JoeTaxpayer

Once I put money into an IRA by accident as well, and the next day I called the company (ETrade) and told them about it, and they said that because I just made the contribution -- that is, transferring money from my taxable savings account to the IRA -- they would transfer the money back and not report anything to the IRS. The only paperwork was to write a letter, sign it, and fax it to them.

Reply to
removeps-groups

Yes.if earnings were positive. In that case option 2 results in taxable income subject to the 10% premature distribution penalty which cannot be converted to Roth.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Reply to
Phil Marti

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