IRA Rollover mistake

Forum|Forum|1 year ago
October 13, 2024
2 replies
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I'm over the income limit to contribute to a ROTH IRA. I have a traditional IRA with a zero balance (my ROTH has a balance). I intended to put money in the traditional IRA and then do a backdoor ROTH conversion, but I mistakenly put the money directly into the ROTH IRA. This was done in October 2024 for tax year 2024... How can I correct this?

Thanks

Tom

Best answer by dmertz

If you have no traditional IRAs with a nonzero balance, ask the IRA custodian to recharacterize the Roth IRA contribution. They custodian will transfer to the traditional IRA the amount originally contributed to the Roth IRA adjusted for attributable investment gain or loss. You can then do the Roth conversion of the entire balance in the traditional IRA that you were originally intending to do. If there was an attributable investment gain, the gain will be taxable upon conversion.

Opus 17

Employee

You can reverse an IRA contribution for any reason within the tax year. This is a special procedure, not a regular withdrawal. The plan must also send you any earnings that are attributed to the reversed contribution, and those earnings will be taxable for 2024.

Then, you can separately make the IRA contribution, and then do the rollover/backdoor conversion.

You can also sometimes perform a "recharacterization" of an IRA contribution. That would be having the IRA custodian recharacterize the Roth contribution as a traditional contribution, without having to withdraw and redeposit the money. However, the rules on recharacterization have changed and some types of recharacterizations are not allowed. I will page an expert @dmertz