When I choose married separate filing, I have a penalty for excess roth IRA contribution. Is recharacterizing it into traditional IRA the best solution?

Forum|Forum|1 year ago
February 27, 2025
1 reply
0 views

Taxable income is 130k. 2024 roth IRA contribution is $8,000. Turbotax suggests three options: 1) recharacterizing it to traditional IRA; 2) withdrawing contributions; 3) Paying the penalty(6%). I opened roth IRA with Charles Schwab and invested in stocks. For options 1&2, should I sell some stocks and withdraw funds? If yes, how much should I do? Thanks in advance.

Best answer by dmertz

Options 1 and 2 are reasonable alternatives, with Option 1 being the simplest. Option 3 requires paying the same penalty every year until the excess is resolved, so usually does not make sense.

The financial institution might allow a recharacterization or a return of contribution before the due date of your tax return to be done in-kind, but it's usually done with cash, which would mean selling an investment if the amount of cash in the sweep account is insufficient to be able to do this.

dmertzAnswer

Employee

Options 1 and 2 are reasonable alternatives, with Option 1 being the simplest. Option 3 requires paying the same penalty every year until the excess is resolved, so usually does not make sense.