Dear Experts,
I'm need some clarity on how to deal with income on IRA contribution between rollovers, recharacterization across Roth and Traditional IRA.
Background:
- I maxed out 2023 Roth IRA contribution limit by mid-June (I did more than one transactions from Jan'23 to Jun'23).
- Later. I switched job and I estimated I will be exceeding the income limit for Roth IRA contributions.
- So I did a recharacterization (Roth to Traditional), of the entire 2023 contribution and income (let's say income is $A) on it so far. This total amount came out to be $6500 + A.
- After 6 days, I did Roth conversion and moved this $6500 + A from Traditional to Roth (Backdoor Roth).
- However, in these 6 days, the total amount gathered an interest, let's say $B, in the Traditional IRA account which was paid next month.
- So, I did another Rollover from Traditional to Roth of $B.
- All the above movements were done in within the year 2023.
My Questions:
- I understand that I need to pay taxes on $6500, which was initial contribution. Correct?
- Do I need to pay taxes on $A, the money that was earned while sitting in Roth IRA account, before the recharacterization happened.
- Do I need to pay taxes on $B, then money that was earned while sitting in the Traditional IRA account, after the recharacterization and before the first rollover.
Please feel free to ask for clarifications. Any help will be appreciated.
