I contributed $2,000 to my Roth IRA a couple of weeks ago. Recently, I sold quite a few exercised ISO's before the 1-year holding period, resulting in an income above the $110,000 limit for any Roth contributions.

So what do I do now? From reading the IRS publications, I know I need to take out the $2K plus any earnings, but I'd like to move it into my traditional IRA if possible. Do I roll it over? Transfer? Recharacterize? I can't make sense of it all.

fling writes:

I contributed $2,000 to my Roth IRA a couple of weeks ago. Recently, I sold quite a few exercised ISO's before the 1-year holding period, resulting in an income above the $110,000 limit for any Roth contributions.

So what do I do now? From reading the IRS publications, I know I need to take out the $2K plus any earnings, but I'd like to move it into my traditional IRA if possible. Do I roll it over? Transfer? Recharacterize? I can't make sense of it all.

I reply:

Simply recharacterize the contributions as traditional IRA contributions. I'd suggest, though, that you wait until next year -- you have until at least April 17, 2000, to complete the process. If bad things happen this year, you may find that your AGI isn't above the limit after all. By February or so, you'll know. --Bob

Bob78164 sez:

<<Simply recharacterize the contributions as traditional IRA contributions. I'd suggest, though, that you wait until next year -- you have until at least April 17, 2000, to complete the process. If bad things happen this year, you may find that your AGI isn't above the limit after all. By February or so, you'll know. >>

While I agree fully with your response, I do believe you made a typographical error in the cutoff date for the recharacterization. It should be April 15, 2000, as opposed to April 17.

Regards..Pixy

TMFPixy writes:

While I agree fully with your response, I do believe you made a typographical error in the cutoff date for the recharacterization. It should be April 15, 2000, as opposed to April 17.

I reply:

It's happened before and it'll happen again, but it didn't happen this time. April 15, 2000, is a Saturday, so tax returns will be due on Monday, April 17, and any cutoffs linked to that due date also are moved to April 17. --Bob

Simply recharacterize the contributions as traditional IRA contributions. I'd suggest, though, that you wait until next year -- you have until at least April 17, 2000, to complete the process. If bad things happen this year, you may find that your AGI isn't above the limit after all. By February or so, you'll know. --Bob

Thanks! In the meantime, should I invest the 2K? I will need to recharacterize all of its earnings as well, right? Would that get tricky, now that it's probably earned a couple weeks of interest in a money market fund that might not appear in the account till after the rest has been invested?

fling writes:

In the meantime, should I invest the 2K? I will need to recharacterize all of its earnings as well, right? Would that get tricky, now that it's probably earned a couple weeks of interest in a money market fund that might not appear in the account till after the rest has been invested?

I reply:

I'd invest; there's no reason to lose six months of earnings. I use Vanguard, which did the calculation of earnings to be recharacterized for me. I imagine that other custodians would do the same. --Bob

I reply:

Simply recharacterize the contributions as traditional IRA contributions. I'd suggest, though, that you wait until next year -- you have until at least April 17, 2000, to complete the process. If bad things happen this year, you may find that your AGI isn't above the limit after all.

Would that include getting married?:>)






Happily married 10+ years,

Billy