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Must we report the Roth IRA if we make too much money?

 
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DanielV01
Expert Alumni

Must we report the Roth IRA if we make too much money?

It depends on your question.  If your question is whether you need to report your contribution as a Roth contribution if you cannot take a deduction for a TIRA (Traditional IRA) because of income, then you have three options:

  1. Leave the contribution as a nondeductible TIRA.  If you do, the contribution must be reported on Form 8606.  You may choose this option regardless of your income.
  2. Recharacterize the TIRA as a Roth IRA contribution.  A recharacterization treats the original nature of the contribution as having never happened.  Since a Roth contribution does not require any special documentation, you still enter the amount into TurboTax (because you still must have qualifying income levels to contribute to a Roth IRA).  However, if your income levels allow, recharacterizing is the most favorable and simplest treatment.
  3. Finally, you may convert the TIRA to a Roth.  If you find out that your income is too high to make a Roth IRA contribution (or recharacterization, basically the same thing for this purpose), then you may leave the TIRA as a nondeductible contribution to a TIRA, and then convert the TIRA to a Roth.  A conversion is different from a recharacterization because you are not changing the nature of the contribution when it was originally made, but rolling it over from one type of account to a different type of account.  This type of contribution is often called a back-door Roth because it allows those whose income is too high to contribute to a Roth directly to still contribute to a Roth, because conversions are not limited neither by the amount of the conversion nor by your income level

However, if you tried to contribute to a Roth, but discovered that your income is too high to do so, you will want to recharacterize the contribution to a nondeductible TIRA.  You may still do so up until the filing deadline of April 17.  You may then immediately convert the amount back into a Roth.  The reason why you want to do so is because if you leave the amount as a Roth, this will be an excessive contribution, and you will pay a 6% penalty every year until the contribution is withdrawn, unless you recharacterize it.

In essence, you will have to report the amount in some way, unless you can speak to your plan administrator about withdrawing the whole amount because it is an excessive contribution.  To recharacterize or convert an IRA, you also would want to speak with your plan administrator.

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