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I contribute to a employee-sponsored 401K.

I also split my annual contribution between a traditional and Roth IRAs.

It now appears that my modified AGI will be above the threshold for taking a deduction for the contribution to the tranditional IRA


1. How would I verify this is the case before the end of the year?

2. If that's the case, what's the best way for me to withdraw that non-deductable contribution from the traditional IRA and place it in the Roth IRA for TY 2012?

Thanks,
Jim
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You can't just withdraw/convert the non-deductible contribution to a TIRA.

The non-deductible contribution is reported on form 8606, and adds to your cost basis. You can convert any amount in your TIRA to a ROTH. The cost basis is pro-rated across the entire value of the TIRA.
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I made the contribution less than 30 days ago.

Looks like I can "recharacterize" my contribution.



Jim
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1. How would I verify this is the case before the end of the year?

Do a projection of your tax return. You'll only need to work on page 1 of the 1040, as you just need to get to AGI. You can get draft 2012 tax forms and instructions here: http://apps.irs.gov/app/picklist/list/draftTaxForms.html

2. If that's the case, what's the best way for me to withdraw that non-deductable contribution from the traditional IRA and place it in the Roth IRA for TY 2012?

You would need to recharacterize the current year contribution from a traditional IRA to a Roth IRA. I believe you have until April 15 2013 to recharacterize 2012 contributions.

If you are going to be close to this threshold every year, it might make sense to delay making your IRA contributions until you've prepared your tax returns. You have until the initial filing deadline (April 15) to make IRA contributions for the prior year.

--Peter
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You can't just withdraw/convert the non-deductible contribution to a TIRA.

Since he's talking about current year contributions, he can convert those from traditional to Roth (or the other way around).

You're talking about the situation when a non-deductible contribution is done and completed for a year (as of now, that would be non-deductible contributions for 2011 and prior years).

--Peter
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You would need to recharacterize the current year contribution from a traditional IRA to a Roth IRA. I believe you have until April 15 2013 to recharacterize 2012 contributions.

Recharacterize is the right answer, and October 15 of the following year is the deadline. See Pub 590 and the instructions for Form 8606.

Phil
Rule Your Retirement Home Fool
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Thanks Peter.

Looks like I'll just recharacterize now & get it over with. I'm guessing my brokerage is "less busy" this time of year.

Then I'll boost my 401K contribution a bit more.


Jim
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Looks like I'll just recharacterize now & get it over with. I'm guessing my brokerage is "less busy" this time of year.

Unless you're absolutely, positively certain you want to recharacterize, I would wait until after you've prepared your taxes (or otherwise determined that you're over the limit for making deductible contributions). There's no pressing need to make that decision now. And, as Phil corrected me, you have until October 15 of next year to do the recharacterization.

The only busy time for brokers and their IRA departments should be April 15 and October 15. As long as you avoid the couple of weeks preceding those dates, their workload should not be an issue.

Then I'll boost my 401K contribution a bit more.

Boosting your 401k contributions will reduce your AGI and potentially make you eligible for deductible IRA contributions if you're right on the borderline.


--Peter
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