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Subject Author Date
how does IRA recharacterization tax work? rick++ 01-23-2008
Posted by krearden on January 25, 2008, 10:39 pm
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> > I contributed $8000 to my Roth IRA last year on the same day (before
> > April 15th): $4000 for 2006 and $4000 for 2007.
> > My 2007 modified adjusted gross income exceeded the limit to be
> > eligible to contribute to the Roth IRA for 2007.
> > My Roth IRA lost money this year - went from a market value of $8000
> > to a market value of $7500.
> > What now?
> > Here are the options I have investigated with financial professionals:
> > 1. Recharacterize my account for the money put in for 2007 from a Roth
> > IRA to a Traditional IRA
> > 2. Take out the $4000 I invested for 2007 with no tax penalty (because
> > I lost money and I already paid taxes on the $4000 I originally put
> > in).
>
> Recharacterization and withdrawal are your two options for avoiding a
> penalty.  In either case the amount will be less than $4,000 since your
> earnings were negative.  See IRS Publication 590.
> --
> Phil Marti
> Clarksburg, MD
>
> --
> << ------------------------------------------------------- >>
> << The foregoing was not intended or written to be used,   >>
> << nor can it used, for the purpose of avoiding penalties  >>
> << that may be imposed upon the taxpayer.                  >>
> <<                                                         >>
> <<   The Charter and the Guidelines for submitting posts   >>
> <<  to this newsgroup as well as our anti-spamming policy  >>
> <<                  are atwww.asktax.org.                 >>
> <<         Copyright (2007) - All rights reserved.         >>
> << ------------------------------------------------------- >>

Thanks! What are advantages/disadvantages of both actions? If I
recharacterized the money in a Traditional IRA I would be able to
deduct this money, right?

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Phil Marti on January 26, 2008, 5:59 am
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> Thanks! What are advantages/disadvantages of both actions? If I
> recharacterized the money in a Traditional IRA I would be able to
> deduct this money, right?

Maybe. The result of recharacterization is that the $4,000 is treated as a
traditional IRA contribution rather than a Roth. See Chapter 1 of IRS
Publication 590 to see if it would be deductible in your specific case.

If it is deductible, that's the way I'd go, rather than a straight
withdrawal.

--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by krearden on January 26, 2008, 4:07 pm
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> > Thanks! What are advantages/disadvantages of both actions?  If I
> > recharacterized the money in a Traditional IRA I would be able to
> > deduct this money, right?
>
> Maybe.  The result of recharacterization is that the $4,000 is treated as a
> traditional IRA contribution rather than a Roth.  See Chapter 1 of IRS
> Publication 590 to see if it would be deductible in your specific case.
>
> If it is deductible, that's the way I'd go, rather than a straight
> withdrawal.
>
> --
> Phil Marti
> Clarksburg, MD
>
> --
> << ------------------------------------------------------- >>
> << The foregoing was not intended or written to be used,   >>
> << nor can it used, for the purpose of avoiding penalties  >>
> << that may be imposed upon the taxpayer.                  >>
> <<                                                         >>
> <<   The Charter and the Guidelines for submitting posts   >>
> <<  to this newsgroup as well as our anti-spamming policy  >>
> <<                  are atwww.asktax.org.                 >>
> <<         Copyright (2007) - All rights reserved.         >>
> << ------------------------------------------------------- >>

Thank you for your input, it has been very helpful!

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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