@fleuver11 wrote:
Hello, I put in the $6K maximum into my Roth IRA through TDA earlier in 2021 (income <$125K, <50 yrs old). I now believe my income might be over the $140K limit for 2021, and would like to make the appropriate corrections now by moving this over to a traditional IRA.
TDA offers a "Removal of Excess" form, or an "IRA Recharacterization " form to fill out:
https://www.tdameritrade.com/content/dam/tda/retail/marketing/en/pdf/TDA1401.pdf
https://www.tdameritrade.com/content/dam/tda/retail/marketing/en/pdf/TDA269.pdf
I am not sure which is the best method for the movement even after speaking with a rep. The rep told me the recharacterization form is for a nontaxable, but reportable movement. They also mentioned the Removal of Excess form will yield a 1099-R and calculated earnings are considered taxable. It has a section on tax withholdings to fill out, and has an option to distribute the amount as a deposit into a different IRA. It wasn't clear to me if a 1099-R would also be generated if I filled out the recharacterization form instead.
Additionally, based on whichever is the best method, when doing the movement, will the earnings from the $6K originally in the Roth IRA count towards the $6K limit for all IRAs? So if the $6K has grown to be $6100 while in the Roth IRA, would I need to withdraw $100 and pay a penalty on that, and only be allowed to put in exactly $6K when moving to the traditional IRA?
Thanks in advance for the help.
They are correct. Any earnings on a return of contribution is taxable income.
A recharacterization has no tax since the contribution is simply deemed to have been made to a Traditional IRA in the first place. The IRA custodian must issue a 1099-R with a box 7 code R for the recharacterization. The earnings are simply moved to the Traditional IRA along with the contribution.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
