When I choose married separate filing, I have a penalty for excess roth IRA contribution. Is recharacterizing it into traditional IRA the best solution?

[ssong1]

Taxable income is 130k. 2024 roth IRA contribution is $8,000. Turbotax suggests three options: 1) recharacterizing it to traditional IRA; 2) withdrawing contributions; 3) Paying the penalty(6%). I opened roth IRA with Charles Schwab and invested in stocks. For options 1&2, should I sell some stocks and withdraw funds? If yes, how much should I do? Thanks in advance.

[dmertz]

Options 1 and 2 are reasonable alternatives, with Option 1 being the simplest.  Option 3 requires paying the same penalty every year until the excess is resolved, so usually does not make sense.

The financial institution might allow a recharacterization or a return of contribution before the due date of your tax return to be done in-kind, but it's usually done with cash, which would mean selling an investment if the amount of cash in the sweep account is insufficient to be able to do this.