@jtax wrote:
@Opus 17 In the case we are talking about (Roth IRA contributions recharacterized to Traditional IRA during the same tax year of the contribution) and in your first example (rechar $7000 Roth contrib + $500 NAI to Trad IRA)
am I correct in thinking that is the net effect is the same as making a $7500 contribution to the Traditional IRA?
If so then if that amount ($7500) is say, $500 over the taxpayer's traditional IRA max contribution, $500 (plus its own earnings) will have to be withdrawn as an excess contribution. Right?
A recharacterization is not a simple "contribution" because of the issue of earnings. The contribution part that is recharacterized is subject to the usual limits, but not the movement of the earnings. If the earnings were treated as part of the contribution, then recharactsrizations would only be practical in a declining market.
While there ends up being $7500 of "new money" in the traditional IRA, the same thing would have happened if the taxpayer had contributed $7000 earlier in the year, which had earned $500 from market growth.
