Mistakenly opened Rollover IRA instead of Roth

Forum|Forum|2 years ago
June 1, 2024
1 reply
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My wife mistakenly opened a rollover ira instead of a Roth IRA five years ago. She has funded every year. We never took a deduction on our taxes. Can we convert this to Roth with out a tax penalty? What are our options?

fanfare

Level 15

if you never took a deduction you can amend to add the correct Form 8606 for those years.

You can convert all or part of your IRA to a Roth IRA.

If the rollover IRA started with any non-zero amount due to a rollover, you won't be able to convert to a Roth without tax impact.

@Bbrun200587

fanfare

Level 15

If your Rollover IRA has been growing for five years, as it should, any amount converted will include partly growth (taxable) and partly non-deductible contributions (not taxable).

See Form 8606. You must use the calculation on Form 8606.

@Bbrun200587

fanfare

Level 15

"She has funded every year."

Funding allocated to 2024 can be reassigned to a Roth IRA using the recharacterize request to your custodian.

recharacterization: the original amount to the first IRA you report as contribution to the second IRA, earnings move but are ignored.
You must use a trustee-to-trustee transfer before the due date April 15,2025.
You will instruct trustee to calculate the allocable earnings.

@Bbrun200587