IRA Recharacterization and Excess Withdrawal

Forum|Forum|1 year ago
January 30, 2025
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Hello,

I contributed $1000 to a Roth IRA in 2024 before realizing that my MAGI would exceed the limit for the year. When I realized this I changed my investments and invested $6000 into my Traditional IRA the rest of the year. About 2 weeks ago I recharacterized the $1000 from Roth IRA to Traditional IRA. When filling out my taxes on turbo tax I realized that all of my money contributed and recharacterized into the Traditional IRA would be non-deductible. As such, I am hoping to do an excess contribution withdrawal and withdraw all $7000 (and the earnings) that I contributed to IRAs this year. Are there any tax implications if I do an excess withdrawal from a contribution that was already recharacterized? I use Fidelity and it looks like I'll have to do an excess withdrawal of $6000 from the Traditional IRA and $1000 from the Roth IRA, so I'm not sure if this creates problems tax wise.

fanfare

Employee

recharacterization: the original amount to the first IRA you report as contribution to the second IRA, earnings (plus or minus) move but that is ignored.
You must use a trustee-to-trustee transfer before the due date April 15,2025 ( or Oct 15, 2025 if 1040 was timely filed or extended).
You will instruct trustee to calculate the allocable earnings.

report this on your tax return for the year during which the contribution was made.
Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA.

Upon reporting a Trad IRA contribution (non-deductible) on your tax return, you can then also report a Roth conversion of the contributed amount for net tax of zero, unless your IRA already had a basis.

In that case, it can't be done tax free.

"and invested $6000 into my Traditional IRA the rest of the year. "

this is a completely separate action not related to a disallowed contribution to Roth IRA

@schaf410