topic Roth recharacterization to Traditional IRA in Retirement tax questions

Roth recharacterization to Traditional IRA

OCmama78 — Thu, 13 Feb 2025 21:20:28 GMT

If an unallowable Roth of $7000 was recharacterized to a traditional IRA plus earnings of $1400 (Total $8400), is the earnings taxable? I was told no, not until it is distributed but $8400 is over the max allowable so it is not making sense to me the earnings are not taxable.

Re: Roth recharacterization to Traditional IRA

ThomasM125 — Thu, 13 Feb 2025 21:35:54 GMT

The amount recharacterized is not taxable, but you are subject to a penalty for over-contributing to your IRA in the amount of the earnings in this case. The earnings are not taxable until you withdraw them. Since they are still in the IRA, you don't pay tax on them, but you are subject to a 6% penalty for each year the excess contribution remains in the account.

Re: Roth recharacterization to Traditional IRA

dmertz — Thu, 13 Feb 2025 23:07:58 GMT

The earnings transferred to the traditional IRA simply become earnings in the traditional IRA, not a contribution to the traditional IRA. Only the $7,000 recharacterized becomes a ($7,000) contribution to the traditional IRA. There is no tax or penalty.