Questions re: ROTH contribution recharacterization

[NECPA in NEBRASKA]

I found that clients had contributed too much to their ROTHS and they decided to recharacterize the excess contribution and any income to their traditional IRA. I extended their return so that they would have an extended due date. They emailed me last week and said that it had been done by the broker on 4/16. I filed the returns on 4/17. Today I get a phone call that it even though they had an email from their broker, it will not be final until this week. I have been researching again and it still looks as if they will be ok because the due date is not until 10/15. If that's not the case, then I get to amend federal and two states after I get back from vacation. Boo!

[Lee B]

My understanding is that under the TCJA, the recharacterization of ROTH contributions is no longer allowed .

[NECPA in NEBRASKA]

27 minutes ago, cbslee said:

My understanding is that under the TCJA, the recharacterization of ROTH contributions is no longer allowed .

Thanks! I will keep looking. I thought that the change in 2018 was only for IRAs that had already been recharacterized to ROTHS. I know Merrill Lynch said that it was good, but they have been wrong before.

[Hahn1040]

recharacterization of a conversion is no longer allowed

contributions can be recharacterized

Though, my first question is:  did they contribute too much to the ROTH because of income limitations or because they were over the IRA limit?

• If they contributed $6,500 to the ROTH or any IRA but they were only 40 years old, then they have an excess contribution that must be withdrawn including earnings.  Taxed on the 2019 return because that is when it was distributed.
• If they contributed $5,000 but earned income was only $3,000 then again: excess that must be withdrawn
• If they contributed too much because of income limitations, then they can recharacterize the excess plus earning. 

               It must be accomplished by the due date of the return (including extensions)

               The contribution is treated as if it had been contributed to the traditional IRA originally. 

                Report the contribution on form 8606

                Include an explanation in the notes on form 8606 :  include date, amount and reason for the recharacteization

                1099R  will be issued for 2019 with code R.  IT is NOT reported on the  2019 return.  The distribution is not reported on 2018 or 2019 line 4a or b.

 

 

[NECPA in NEBRASKA]

11 minutes ago, Hahn1040 said:

recharacterization of a conversion is no longer allowed

contributions can be recharacterized

Though, my first question is:  did they contribute too much to the ROTH because of income limitations or because they were over the IRA limit?

• If they contributed $6,500 to the ROTH or any IRA but they were only 40 years old, then they have an excess contribution that must be withdrawn including earnings.  Taxed on the 2019 return because that is when it was distributed.
• If they contributed $5,000 but earned income was only $3,000 then again: excess that must be withdrawn
• If they contributed too much because of income limitations, then they can recharacterize the excess plus earning. 

               It must be accomplished by the due date of the return (including extensions)

               The contribution is treated as if it had been contributed to the traditional IRA originally. 

                Report the contribution on form 8606

                Include an explanation in the notes on form 8606 :  include date, amount and reason for the recharacteization

                1099R  will be issued for 2019 with code R.  IT is NOT reported on the  2019 return.  The distribution is not reported on 2018 or 2019 line 4a or b.

 

 

They are actually both 61 and the excess contributions were due to income limitations. Thank you!