IRA contributions

[Rev-Paul]

I had excess contributions to my Roth IRA because I had very little earned income.  I was going to withdraw $3,500 of the $7,000 I put in for 2019 out of my Mutual Fund but the company suggested I re- characterize  the money into my traditional IRA.  Playing with Turbo Tax seems to allow me to do that and avoid a penalty for excess contribution.  What am I missing?

[DianeC958]

To contribute to either a Roth IRA or a regular IRA you would need to have $7,000 of earned income. Depending on your overall income there are also limits on contributing to either type of account.  The income limits are higher for a Roth IRA than a regular IRA.

The program will allow you to re characterize the contribution to a regular IRA and avoid the penalty for over contributing to the Roth IRA but you may find that the contribution to the regular IRA becomes a non-deductible contribution.

Link to What's the difference between a Tradiontl IRA and a Roth IRA

[dmertz · Accepted solution]

Recharacterizing is of no help if you don't have the compensation to support the contribution.  Without sufficient compensation to support the contribution, recharacterizing will just change an excess Roth IRA contribution into an excess traditional IRA contribution.  Recharacterizing is only of benefit if the Roth IRA contribution is an excess contribution only because your modified AGI for the purpose is too high.