Recharacterization: Roth IRA to Traditional IRA

[next1cruise]

My wife, age 56, made a 2019 contribution of $7,000 to her Roth IRA on 1/2/2019. On 2/22/2019 she re-characterized the $7,000 contribution to her traditional IRA (trustee to trustee). Her earnings of $523 were included in the total ($7,523) contribution to the traditional IRA.

Questions:

1. Does the $7,000 re-characterization qualify as a deductible contribution to her traditional IRA?

2. As the total contribution was $7,523, is $523 considered an excess contribution or is it acceptable to consider it a rollover to the traditional IRA?

3. Can the extra $523 be considered a non-deductible contribution thereby avoiding a penalty for an excess contribution?

[dmertz]

1.  See the following IRS web page to see if the resulting $7,000 traditional IRA contribution is deductible:  https://www.irs.gov/retirement-plans/ira-deduction-limits

2.  The total contribution was $7,000, not $7,532.  When moved to the traditional IRA, the $523 of earnings in the Roth IRA became $523 of earnings in the traditional IRA instead.

3.  No.  There is no excess contribution (provided she was eligible to contribute $7,000).  The $523 is the amount of earnings, not part of the contribution.

Note that the amount recharacterized was $7,000, not $7,523.  $7,523 was the amount transferred.

[dmertz]

I added a bit to my answer, please reread it.

[next1cruise]

Thanks dmertz. This is a complex topic. I am considering running my return through TurboTax Live to have a professional review the return.

[fanfare]

your situation is not that complex.

you just have to determine your eligibility for a deductible --fully, or partially-- IRA contribution.

Enter 7000, TurboTax will tell you if it is not deductible, by increasing your tax with a penalty.

[dmertz]

What penalty?  There is no penalty (unless you consider ordinary income tax paid now instead of later a penalty, which seems unreasonable).