Backdoor Roth "conversion" on money already contributed directly to Roth IRA

Forum|Forum|1 year ago
December 7, 2024
1 reply
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Earlier this year, I contributed the max amount to my Roth IRA directly, but due to a pretax to Roth 401k conversion, my taxable income will increase and I'll have to "convert" the Roth IRA contribution to a backdoor Roth to workaround the Roth IRA contribution income limit. I made the contribution several months ago, so I'm sure I will have some gains / losses.

What is the best way to go about "converting" my direct Roth IRA contribution to a backdoor Roth IRA contribution, and how would I enter it correctly in the TurboTax desktop edition?

TurboTax Premier Online

jtax

Employee

You can either undo you contribution (plus earnings I think) or recharacterize your Roth contributions as Traditional IRA contributions.

For an article on this see https://www.investopedia.com/what-to-do-if-you-contribute-too-much-to-your-roth-ira-4770686

Your IRA custodian/broker should have forms or a webpage that allows you to instruct them to remove excess contributions or recharacterize contributions. This is something they do every day.

If this for the current tax year changing should be easy. It appears there are even ways to do this after filing your return (for a certain amount of time). But it should be much easier to get it taken care of before filing and why not in the same TY.

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thegoodreturnAuthor

Thank you jtax. So it sounds like I'd recharacterize the Roth IRA to traditional. What would I do next to make it a backdoor Roth? Recharacterize it again, or is it a different process?

jtax

Employee

@thegoodreturn wrote:

Thank you jtax. So it sounds like I'd recharacterize the Roth IRA to traditional. What would I do next to make it a backdoor Roth? Recharacterize it again, or is it a different process?

I think you need to "convert" not "recharacterize" this Trad IRA to a Roth. Recharacterize is for just making switching a (current year?) contribution from one type to another. To do a backdoor the switch needs to be taxable.

See for example https://www.fidelity.com/retirement-ira/recharacterize , which says that you might recharacterize if (among other cases):

You originally contributed to a traditional IRA

BUT ...

you're within the income limits to get potential tax-free earnings from a Roth.

I think once the funds are in the Traditional you would convert those funds just like you would do for any Roth conversion. Usually the custodian has a form (often online these days).

Again, there could be something that prevents this, but I don't see any such exception.

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