When you said : “Then you need to withdraw the excess contributions and turn the money into Back Door Roth IRA's to have the tax benefits when you retire.”
1) Were you referring to the 2018 excess or 2019?
My financial advisor is telling me:
“We will have to 'remove excess contribution' for 2018 - that cannot go into an IRA/Roth but will have to remain outside of a retirement account for 2018 purposes. There does not seem to be away around maintaining a 'contribution' for 2018.
We will do a recharacterization for 2019 - move from the Roths to IRAs. Then we can "convert to Roth" still for 2019.
Going forward we will contribute an IRA (as a non-deductible contribution) and convert to a Roth IRA.”
Additional Questions:
2) when they remove the 2018 excess contribution, do we have to also remove any earnings/interest/loss on that excess amount or remove just the excess (5500 for each of us, so 11k)?
3) when the 2018 excess is removed, I have read a blog that if you are past the 12/31 deadline that means you will owe a 6% penalty per year, the 11k also becomes taxable income for 20xx? And there is a 10% penalty for early distribution. Can you confirm?
4) For 2019, bc we aren’t eligible for a Roth due to income, as noted above our financial advisor is saying we will do a recharacterization and then conversion to Roth. I have read different blogs where you must pay income taxes if you convert back to a Roth, so an extra 11k of taxable income for 2019 taxes. Is that right?
thanks!!
