Thanks for explaining this very confusing process to us. It came in timely for me. I do have a question and would appreciate your thoughts on it. I over contributed to my ROTH IRA in 2023 and have already contributed to 2024. I did a recharacterization on the 2023 contribution to traditional IRA in Feb of 2024. To convert back to ROTH through the back door, what would you recommend for timing; 1- Convert before filing 2013 Tax OR 2- File 2023 tax then convert after. With this option, I can recharacterize the 2024 contribution and then do a back door conversion for the combined 2023 and 2024 amount. I am thinking of the easiest way to deal with tax forms like 8606 and any others. Thank you
Thanks for clearing this up! I knew the recharacterization from IRA to ROTH IRA couldn't be undone due to Tax Law change from 2018. I thought the same would maybe apply to the Roth excess into non-deductible IRA, and then back door conversion. Glad to hear it's not, but not happy about going through the headaches to get it done.
Right, that first transaction (IRA to Roth) is called a conversion (just pointing out the technical jargon). I agree, this is such a ridiculously complicated transaction for so little. All for a few lines of tax code.
I had to do this because in 2023 I contributed $6500 Roth IRA but in 2024 before filing taxes I realized being married made our MAGI not eligible to have a ROTH IRA. So I recharaterized my last years contirbutions to a Traditional IRA contribution. However the recharacterization included the gains as well. Now I want to do a conversion of the the traditional IRA into a ROTH IRA but I can only do $6500. Can you explain in more detail what I should do with the excess left over in my traditional IRA that I can't convert. As you said to avoid the pro rata rule and taxes my traditional IRA should have $0 at the end of the year so I dont know what to do with the excess.
Travis, thanks for info. I must tell that had to take 2 Tylenol pills after watching this video. Why would anyone contribute more than limits set by IRS Duh! The IRS is about to hire 87,000 new agents. On Excess Roth IRA contribution, would making a smaller contribution following year fix problem ?
Great explanation, bit I am stuck on one piece! I contributed to a Roth as a single person in Jan 2023. But got married in Nov 2023 and became ineligible due to combined income. So I recharacterized the 6k back to a traditional IRA (I had to open one, I make too much to deduct so never used/had traditional ira). Now I want to put back into the Roth so don't have to deal with pro-rata etc. But Schwab told me I will be taxed as income if I do this! Question: I already paid full income taxes on the 6k before contributing to a Roth to begin with. I don't want to be double taxed when backdoor Roth it, am I out of luck??
Doing this for 2023 filing- I contributed both for 2023 and 2024 in Roth but my MAGI is high. so this year before filing my taxes -I recharacterized entire contribution + earnings on Roth to traditional ( so I understand from this video that theres no tax , but I need to report the contribution as non deductible- on form 1040 (4a) and 8606) . Question : are earning reported somewhere too? as Second step I have converted that traditional IRA completely to Roth again in 2024- so I will report this conversion in 2024 tax year , correct?
not sure why the text is canceled out, but can someone with this- am i correct to say i report 2023 contribution on form 1040 4(a) and 8606? 2024 contribution i have in explanation statement.
Hey Travis, Thanks for clarifying it. I had a similar issue however I had no gains but instead loses. Contributed:$1500 After recharacterization: $1438 This money was invested in mutual fund (sp500) in my Roth IRA and after recharacterization it's got sent to Tradition IRA with the same mutual fund. So prettyy much right now I have Traditional IRA with Sp500 worth of $1438. Do I need to convert this to cash before converting to Roth IRA? Using vanguard and there is a button that says "Convert to Roth IRA"
Thanks for this video, it's really helpful. I did this exact transaction in 2021: I initially made an after-tax contribution to my Roth IRA by mistake, and realized I meant to put it in my traditional IRA. I re-characterized the full amount of my initial contribution into my traditional IRA, minus the loss of a few dollars it had while it sat in the Roth. I then converted that money back into my Roth account via a back door conversion. I was under the impression that these transactions would not be subject to taxes in 2021 because they were after-tax contributions and I followed the re-characterization steps. However, my Vanguard 1099-R for the traditional IRA now says that the full amount I converted into my Roth IRA is taxable by the IRS. Is that right? Thanks for any insight you can offer.
Form 8606 for nondeductible contribution reporting and tracking. The 1099-R is just the conversion form and okay if it looks taxable. That’s why there is the 8606. Brokers don’t track nondeductible contributions.
@Travis Sickle This is what I am going through now. So after re-characterization from roth to traditional then convert it back to roth + form 8606, I don’t need to worry about taxes or pro rata rule? Thank you! Liked and subscribed
In 2021 I exceeded the single income limit and just got a 1099R . I then skipped the roth portion for 2022 as I made even more than 2021. It appears my 401k rolled the roth portion ($5k) into my pre tax portion. I got a 1099R . So what are the tax implications?
So I made $6000 in contributions to Roth IRA in 2022 and $2000 so far in 2023. However, I will need to recharacterize for both years because my income has been too high for both years. I also have a sep Ira so I can’t do the back door Roth in 2022. I plan to roll that into a solo 401k this year. Would you just recharacterize the 6000 for 2022 and then just do the backdoor Roth in 2023 with that same money? Or would it be better to do the backdoor Roth in 2022 and just take the penalty? I have around 20,000 in the sep.
You can't do a backdoor Roth for 2022 since we're i 2023. You can only do the contributions retroactively. I just posted a video on this explaining in detail.
I set up a Roth IRA in 2021, and made a partial contribution of $5k. My business partner and I transitioned our partnership into an S-Corp before the end of 2021 (after my contribution), and if I understand it correctly, the S-Corps profits are a pass through onto the shareholders personal AGI/MAGI, therefore I believe that I will have surpassed the limit of any contributions to a Roth IRA (I'm filing 2021 at MFJ). Here is where it gets tricky, my Roth IRA is with Itrustcapital, I invested in some crypto and now that $5k has gone down 50% (which I'm not worried about), but what would be the best course of action here. Thanks in advance!
Here's my situation. I have excess Roth contributions and gains on it. I don't have any other IRAs. How do I save on taxes and penalties on the earnings by moving the earnings into my workplace plan (Roth 401k)? I understood the excess contributions to non-deductible IRA and back to Roth.
Is there any way to save penalty on the excess Roth IRA gains? (I think there is no way). One way is to just leave the money there and pay the 6% penalty of just the excess if that is lower than the income tax + penalty on the gains. But in my case, both are almost equal.
What if I reached my limit in my Fidelity Investment Roth IRA but had taken back some of the principal, does the amount I pulled force an adjustment in my Roth Contribution Limit being reached?
Possibly, but not likely. An excess contribution voids the contribution but requires certain steps, including removing the net income attributable. Following this method requires different paperwork and it's coded differently as well. There is also a 60 day rollover that may make it still possible. Another option would be to use your workplace plan or a small business plan to get more Roth contributions.
If I’m contributing monthly ($500/mo) to max my $6k a year contribution, do I do this recharacterization monthly from Roth to Traditional? Or would I wait until my last contribution in the Roth on Dec 2, then recharacterize on Dec 15th. Then ultimately convert back into the Roth before the end of the calendar year? My confusion lies with the timing of these actions and getting a full yr of taxes done and over with. I don’t like having to recharacterize this year cause I made too much last year and now the conversion will be part of my 2022 taxes, but all this is from contributions in 2021.
Can I preemptively use the back door to avoid excess contribution to my Roth ira. I think I will be over the income limit this year but not sure yet. can I contribute to IRA then convert to Roth IRA just in case?
Hi, I have been searching the Internet high and low to make sure I am going to do this right. Every year, on January 1, I contribute max contributions to my Roth IRA as I was never in danger of going over the income limit. This year, due to unforseen circumstances, I am sure I am over the income limit to even contribute a single dollar, meaning I am only eligible to contribute $0. I am looking for the correct way to handle recharacterizing my $6k. I have a workplace 401k, a traditional IRA (401k from 2 previous employers ago that I transferred to a traditional IRA instead of transferring to current employer 401k), and a Roth IRA. Since I am wanting to recharacterize my excess Roth IRA contributions, do I need to empty out my traditional IRA into my current employer's 401k? Also since the economy is down, I wouldn't have made money on my excess contributions this moment in time, so does the pro rata rule still apply?
I opened a Roth IRA in 2021 oblivious on the rules. I contributed total of 4600 in 2021 and another 1800 in 2022 but in the downturn the total value in cash is 3965. I've been trying to understand the recharacterization rules but determining the opening balance prior to any contributions baffles me - I believe it was zero becuase I jsut opened the account. The IRS worksheet doesn't seem to take this in account and seems written for someone who had an existing balance. Can you help sort out opening balance in a new account?
You seem to have a wealth of information, would you like to help me do my taxes as a case study for the channel? I assure you, it is easy "for you". Haha
@@TravisSickle i don't, first year self employed and just started studying about saving despite being middle-aged. Way behind in the game but willing to learn
@@TravisSickle I am willing to be a case study for your channel if you're interested! (Sorry to inject myself Fabiano, but I'm a little desperate for some help haha). When starting to file my taxes on TurboTax, I realized the entire $6K contribution I made to my ROTH last year is considered an excess contribution. I've already started the recharacterization process of both my contribution and earnings, and would like to convert it back to a ROTH once it is done. I've also filed for a tax extension because I'm feeling overwhelmed and would like to make sure that I'm doing this correctly and also reporting out on it correctly when filing my taxes.
I contributed more to my Roth IRA than earned income for many years. I am estimating that I will probably lose about $15,000 to $20,0000 in excess contribution penalties. Opening up a Roth IRA is going to be my worst Financial mistake ever.
Thanks for explaining this very confusing process to us. It came in timely for me.
I do have a question and would appreciate your thoughts on it.
I over contributed to my ROTH IRA in 2023 and have already contributed to 2024. I did a recharacterization on the 2023 contribution to traditional IRA in Feb of 2024.
To convert back to ROTH through the back door, what would you recommend for timing;
1- Convert before filing 2013 Tax OR
2- File 2023 tax then convert after. With this option, I can recharacterize the 2024 contribution and then do a back door conversion for the combined 2023 and 2024 amount.
I am thinking of the easiest way to deal with tax forms like 8606 and any others.
Thank you
Helpful and timely.
Glad it was helpful!
Thanks for clearing this up! I knew the recharacterization from IRA to ROTH IRA couldn't be undone due to Tax Law change from 2018. I thought the same would maybe apply to the Roth excess into non-deductible IRA, and then back door conversion. Glad to hear it's not, but not happy about going through the headaches to get it done.
Right, that first transaction (IRA to Roth) is called a conversion (just pointing out the technical jargon). I agree, this is such a ridiculously complicated transaction for so little. All for a few lines of tax code.
I had to do this because in 2023 I contributed $6500 Roth IRA but in 2024 before filing taxes I realized being married made our MAGI not eligible to have a ROTH IRA. So I recharaterized my last years contirbutions to a Traditional IRA contribution. However the recharacterization included the gains as well. Now I want to do a conversion of the the traditional IRA into a ROTH IRA but I can only do $6500. Can you explain in more detail what I should do with the excess left over in my traditional IRA that I can't convert. As you said to avoid the pro rata rule and taxes my traditional IRA should have $0 at the end of the year so I dont know what to do with the excess.
I am in the same boat as you
Travis, thanks for info. I must tell that had to take 2 Tylenol pills after watching this video. Why would anyone contribute more than limits set by IRS Duh! The IRS is about to hire 87,000 new agents. On Excess Roth IRA contribution, would making a smaller contribution following year fix problem ?
Great explanation, bit I am stuck on one piece! I contributed to a Roth as a single person in Jan 2023. But got married in Nov 2023 and became ineligible due to combined income. So I recharacterized the 6k back to a traditional IRA (I had to open one, I make too much to deduct so never used/had traditional ira). Now I want to put back into the Roth so don't have to deal with pro-rata etc. But Schwab told me I will be taxed as income if I do this! Question: I already paid full income taxes on the 6k before contributing to a Roth to begin with. I don't want to be double taxed when backdoor Roth it, am I out of luck??
We are in 2023, assuming 2022. Either way, pro rata still applies.
Doing this for 2023 filing- I contributed both for 2023 and 2024 in Roth but my MAGI is high. so this year before filing my taxes -I recharacterized entire contribution + earnings on Roth to traditional ( so I understand from this video that theres no tax , but I need to report the contribution as non deductible- on form 1040 (4a) and 8606) . Question : are earning reported somewhere too? as Second step I have converted that traditional IRA completely to Roth again in 2024- so I will report this conversion in 2024 tax year , correct?
not sure why the text is canceled out, but can someone with this- am i correct to say i report 2023 contribution on form 1040 4(a) and 8606? 2024 contribution i have in explanation statement.
Hey Travis,
Thanks for clarifying it. I had a similar issue however I had no gains but instead loses.
Contributed:$1500
After recharacterization: $1438
This money was invested in mutual fund (sp500) in my Roth IRA and after recharacterization it's got sent to Tradition IRA with the same mutual fund. So prettyy much right now I have Traditional IRA with Sp500 worth of $1438.
Do I need to convert this to cash before converting to Roth IRA?
Using vanguard and there is a button that says "Convert to Roth IRA"
Roth IRA conversion with stocks ua-cam.com/video/JYNHZ3iucDk/v-deo.html
Thanks for this video, it's really helpful. I did this exact transaction in 2021: I initially made an after-tax contribution to my Roth IRA by mistake, and realized I meant to put it in my traditional IRA. I re-characterized the full amount of my initial contribution into my traditional IRA, minus the loss of a few dollars it had while it sat in the Roth. I then converted that money back into my Roth account via a back door conversion. I was under the impression that these transactions would not be subject to taxes in 2021 because they were after-tax contributions and I followed the re-characterization steps. However, my Vanguard 1099-R for the traditional IRA now says that the full amount I converted into my Roth IRA is taxable by the IRS. Is that right? Thanks for any insight you can offer.
Form 8606 for nondeductible contribution reporting and tracking. The 1099-R is just the conversion form and okay if it looks taxable. That’s why there is the 8606. Brokers don’t track nondeductible contributions.
Reporting the 8606 will fix it essentially. It’s not wrong. That’s just how it’s done.
@@TravisSickle I see, thanks very much for your reply.
@Travis Sickle
This is what I am going through now. So after re-characterization from roth to traditional then convert it back to roth + form 8606, I don’t need to worry about taxes or pro rata rule? Thank you! Liked and subscribed
In 2021 I exceeded the single income limit and just got a 1099R . I then skipped the roth portion for 2022 as I made even more than 2021. It appears my 401k rolled the roth portion ($5k) into my pre tax portion. I got a 1099R . So what are the tax implications?
So I made $6000 in contributions to Roth IRA in 2022 and $2000 so far in 2023. However, I will need to recharacterize for both years because my income has been too high for both years. I also have a sep Ira so I can’t do the back door Roth in 2022. I plan to roll that into a solo 401k this year. Would you just recharacterize the 6000 for 2022 and then just do the backdoor Roth in 2023 with that same money? Or would it be better to do the backdoor Roth in 2022 and just take the penalty? I have around 20,000 in the sep.
You can't do a backdoor Roth for 2022 since we're i 2023. You can only do the contributions retroactively. I just posted a video on this explaining in detail.
I set up a Roth IRA in 2021, and made a partial contribution of $5k. My business partner and I transitioned our partnership into an S-Corp before the end of 2021 (after my contribution), and if I understand it correctly, the S-Corps profits are a pass through onto the shareholders personal AGI/MAGI, therefore I believe that I will have surpassed the limit of any contributions to a Roth IRA (I'm filing 2021 at MFJ). Here is where it gets tricky, my Roth IRA is with Itrustcapital, I invested in some crypto and now that $5k has gone down 50% (which I'm not worried about), but what would be the best course of action here. Thanks in advance!
same transactions but minus the loss. So if you contributed $6k and it went to $3k, then you will just move the $3k.
Here's my situation. I have excess Roth contributions and gains on it. I don't have any other IRAs. How do I save on taxes and penalties on the earnings by moving the earnings into my workplace plan (Roth 401k)? I understood the excess contributions to non-deductible IRA and back to Roth.
Is there any way to save penalty on the excess Roth IRA gains? (I think there is no way). One way is to just leave the money there and pay the 6% penalty of just the excess if that is lower than the income tax + penalty on the gains. But in my case, both are almost equal.
Roth IRA excess contribution AVOID 6% Penalty...this way.
What if I reached my limit in my Fidelity Investment Roth IRA but had taken back some of the principal, does the amount I pulled force an adjustment in my Roth Contribution Limit being reached?
Possibly, but not likely. An excess contribution voids the contribution but requires certain steps, including removing the net income attributable. Following this method requires different paperwork and it's coded differently as well. There is also a 60 day rollover that may make it still possible. Another option would be to use your workplace plan or a small business plan to get more Roth contributions.
@@TravisSickle thanks, Travis. Nice channel you have.
If I’m contributing monthly ($500/mo) to max my $6k a year contribution, do I do this recharacterization monthly from Roth to Traditional? Or would I wait until my last contribution in the Roth on Dec 2, then recharacterize on Dec 15th. Then ultimately convert back into the Roth before the end of the calendar year? My confusion lies with the timing of these actions and getting a full yr of taxes done and over with. I don’t like having to recharacterize this year cause I made too much last year and now the conversion will be part of my 2022 taxes, but all this is from contributions in 2021.
I posted another video on fixing multiple contributions.
Can I preemptively use the back door to avoid excess contribution to my Roth ira. I think I will be over the income limit this year but not sure yet. can I contribute to IRA then convert to Roth IRA just in case?
I like your thinking. It could work but don't forget the pro-rata rule when doing a Roth conversion.
@@TravisSickle thank you that’s very helpful. Of course I’ll have to watch for pro rata trap
Hi, I have been searching the Internet high and low to make sure I am going to do this right.
Every year, on January 1, I contribute max contributions to my Roth IRA as I was never in danger of going over the income limit.
This year, due to unforseen circumstances, I am sure I am over the income limit to even contribute a single dollar, meaning I am only eligible to contribute $0.
I am looking for the correct way to handle recharacterizing my $6k.
I have a workplace 401k, a traditional IRA (401k from 2 previous employers ago that I transferred to a traditional IRA instead of transferring to current employer 401k), and a Roth IRA.
Since I am wanting to recharacterize my excess Roth IRA contributions, do I need to empty out my traditional IRA into my current employer's 401k? Also since the economy is down, I wouldn't have made money on my excess contributions this moment in time, so does the pro rata rule still apply?
If the 401k allows it. That depends on plan docs. Pro rata still applies. If a loss it’s less that comes out of the Roth.
I opened a Roth IRA in 2021 oblivious on the rules. I contributed total of 4600 in 2021 and another 1800 in 2022 but in the downturn the total value in cash is 3965. I've been trying to understand the recharacterization rules but determining the opening balance prior to any contributions baffles me - I believe it was zero becuase I jsut opened the account. The IRS worksheet doesn't seem to take this in account and seems written for someone who had an existing balance. Can you help sort out opening balance in a new account?
email me on this.
How stupid is it that Americans have to recharacterize Roth contributions as non-deductible Traditional contribution only to convert them afterwards…
Sure is
You seem to have a wealth of information, would you like to help me do my taxes as a case study for the channel? I assure you, it is easy "for you". Haha
Do you have an excess Roth contribution?
@@TravisSickle i don't, first year self employed and just started studying about saving despite being middle-aged. Way behind in the game but willing to learn
@@TravisSickle I am willing to be a case study for your channel if you're interested! (Sorry to inject myself Fabiano, but I'm a little desperate for some help haha). When starting to file my taxes on TurboTax, I realized the entire $6K contribution I made to my ROTH last year is considered an excess contribution. I've already started the recharacterization process of both my contribution and earnings, and would like to convert it back to a ROTH once it is done. I've also filed for a tax extension because I'm feeling overwhelmed and would like to make sure that I'm doing this correctly and also reporting out on it correctly when filing my taxes.
I contributed more to my Roth IRA than earned income for many years. I am estimating that I will probably lose about
$15,000 to $20,0000 in excess contribution penalties.
Opening up a Roth IRA is going to be my worst
Financial mistake ever.
$20,000 Roth IRA PENALTY TAX