If I exceed Roth IRA income limit, and need 2 recharacterize all 2017 Roth contrib to IRA, do i include contribs & gains or just contribs? What is original contrib date?

[Patton222]

My brokerage account company has me filling out a form for the recharacterization, and it says I'm supposed to figure out my gains and contributions on my own. I figured that out, but what do I put down for date of original contribution/conversion? I'm recharacterizing my entire 2017 Roth IRA contribution (plus whatever I put in for 2018 so far). Thanks!

[dmertz · Accepted solution]

The amount that you are recharacterizing is the amount you originally contributed.  The amount to be transferred is the amount being recharacterized plus the gains attributable to the amount being recharacterized.

In this case the date of the contribution/conversion is the date on which the contribution being recharacterized was made to the Roth IRA.  The earnings calculation must be done on the Roth IRA account as a whole.  Assuming no other contributions to or distributions from this Roth IRA account between the date contribution being recharacterized was made to the Roth IRA and the date of the recharacterization, the amount to be transferred to the traditional IRA will be:

Roth contribution * account FMV immediately prior to recharacterization / account FMV immediately after contribution.

See CFR 1.408-11 for the calculation details:  https://www.law.cornell.edu/cfr/text/26/1.408-11

[Patton222]

Thank you! I made recurring contributions of $200 per month, so I’m not sure what date to put. Your formula for the transfer amount works for recurring contributions I made? In other words, I don’t have to figure out what each $200 gained over the tax year?

[Patton222]

Let’s say I contributed $2000 total in tax year 2017 to the Roth. Let’s say this contribution gained $200 for the year. Is there any tax-related danger in transferring more than the contribution plus gain to the new IRA? What happens after I submit the recharacterization form? Do I need to wait for my broker to send something else before I fill out TurboTax?

[dmertz]

No more than the amount contributed during the taxable year, plus its gain should be transferred.  However, if more is transferred, the broker would probably just report the additional amount as part of the gain.  Transferring more than required is not to your benefit.  If the broker instead reports on the code R 2018 Form 1099-R an amount in box 1 minus the amount in box 2a that implies that you recharacterized more than you contributed to the Roth IRA, the IRS could take issue with it, if they detect the discrepancy at all.  (If you have a loss and the amount in box 1 of the From 1099-R is therefore less than the amount recharacterized, the IRA only knows from your explanation statement the amount recharacterized since box 2a will have a zero, not a negative number.)

There is probably no need to wait to submit your tax return since your explanation should agree with the amount you told the broker was the amount being recharacterized and the amount that you told the broker was the gain.  The only reason you might wait is to ensure that the broker follows your instructions so that you know that your explanation statement agrees with what the broker does.  But you won't receive the code R 2018 Form 1099-R until next year.  You'll have to confirm that the transfer took place by reviewing any transaction statements or account statements.