Hi there,I'd really appreciate some advice - I rushed what I now realize was a big decision, took totally unqualified advice and now want to figure out a) if I did mess up and b) how do I fix this and c) either way, what on earth do I put on my tax form?Here's the story: In mid-January, for the first time since having moved to the US I was in the happy position of having maxed out my 401K ($16,500) and having a bit more to save, and wanted to take advantage of an IRA. As I understood it you could either save $5000 before tax in a Traditional IRA and deduct it (which I probably couldn't do being over the earnings limit) or just save $5000 of your after-tax dollars into a Roth IRA.So, I opened a Roth IRA with ING, who hold my few shares and emergency fund and have always been great to work with. I then (note the wrong-way-round timing here) looked a little more into the IRA rules and found out that I was also over the income limit to contribute to a Roth IRA (I earned >$150K in 2011 with bonuses). I called ING and they guy (who kept reminding me he wasn't a qualified tax professional) said that I could recharacterize my Roth IRA to a Traditional one, and then convert it back to a Roth IRA, as there is now no cap on converting Traditional to Roth except you pay taxes on the Traditional gains when you do. I had heard this second part before, and asked another friend who is a CPA and quite smart about tax planning, and he said that he did that (and he earns more than me). Being in a bit of a rush, wanting to get this all done before my tax time was up, I went and did just that. Was this a bad idea? What would have happened if I had contributed to a Roth IRA and was over the limit, do they just tax that part of the capital gains when you take it at the end, so it's just like a regular savings account?Is my Roth now "real" in that by changing it to a traditional IRA and converting back I put the money into it in an "eligible" way? Will this mean I will not be taxed on it if I only take the gains as per the rules when I am retired etc? What happens if I take money out before then?As luck would have it, I technically lost about $200 from when I bought the shares in the original Roth to when I recharacterized it, and then gained back about $200 from when I recharacterized the shares into the Traditional IRA and before I converted it to back to the Roth. What, if anything, do I declare as gains and losses for tax?Is there anything else I missed? How can I avoid this next year (apart from not rushing, getting better advice and coming to this board sooner)?Thanks to everyone in advance for your help.Ali
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar<