Recharacterize an IRA or converting to Roth

[wjewel]

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Hi,

I need help with converting my traditional IRA to Roth. I opened a traditional ira then realizing at the end of the year that I don't qualify for traditional. My broker asked me if I want to do a recharacterize or just converting to a roth? Currently, my IRA is about $-500 in the red. It's contribution that I made 2016,2017,2018 that needed to be convert.

Please advise on what is the best route to take. I did not get any taxes deductible for these three contributions. Please shed some light on the best course of action in regard to dealing with tax. Any advice is greatly appreciated. 🙂

 

[Raryn]

Hi,

I need help with converting my traditional IRA to Roth. I opened a traditional ira then realizing at the end of the year that I don't qualify for traditional. My broker asked me if I want to do a recharacterize or just converting to a roth? Currently, my IRA is about $-500 in the red. It's contribution that I made 2016,2017,2018 that needed to be convert.

Please advise on what is the best route to take. I did not get any taxes deductible for these three contributions. Please shed some light on the best course of action in regard to dealing with tax. Any advice is greatly appreciated. 🙂

If you didn't deduct any of the contributions in this or any traditional IRA (including a SEP, SIMPLE, or rollover IRA), this is easy. You just convert the whole account to a Roth. You will owe taxes only on the earnings (which are negative, so you won't owe taxes at all). This is functionally identical to an intentional backdoor Roth IRA.

If you do have previously untaxed money in this or another IRA, it gets a bit more complicated because of something called the "pro rata" rule. At that point, you'll need to start doing math.