recharacterized too much

kws3 — Sat, 29 Mar 2025 17:53:22 GMT

Hi, I am doing my son's taxes. We have a problem I don't know how to resolve:

Details:

--Prior years - He had always contributed to Roth. He did not have a Trad til this year.

--4/10/24 - He contributed $2500 to his Roth.

--5/10/24 - He realized he was over the limit for Roth contributions. He opened a Trad IRA and recharacterized the $2500 plus gains.

--5/15/24 - He converted the full amount back into Roth, leaving essentially 0.00 in the Trad.

--5/22/24 - He contributed $1500 to his Roth, forgetting he was over the limit.

--At this point, his total to the Roth for 2024 was $4000, and he had already recharacterized $2500.

--3/5/25 - He recharacterized all $4000 (instead of just the remaining $1500 needed).

--3/6/25 - He converted that full amount back into Roth.

So now he has recharacterized $2500 too much. There is zero in the Traditional because he converted it all back to the Roth. (He essentially recharacterized $2500 of money that had been in the Roth before 2024 and then converted it back!)

Turbotax entries:

1) Roth contribution: $4000

2) Transferred in a recharacterization: $6500

3) Explanatory statement that summarizes the above:

$4000 contrib to Roth 4/5/24 & 4/10/24

$2500 plus $17.93 gains = $2517.93 recharacterized 5/10/24

$4000 plus $324.03 gains = $4324.03 recharacterized 3/5/25

4) Excess contributions: $0.00

5) I get "Income too high to deduct an IRA contribution" message, Under that it tells me "Also deductible IRA contributions cannot exceed $7000...".

6) It tells me I have a penalty and one option is to remove the excess amt, etc.

The problem is that he did not contribute too much, he recharacterized too much. If I change the entry in Turbotax, and says he only recharacterized $4000, the IRS Form 8606 will not be accurate and it will not match the 1099-R that Fidelity will produce next year. Fidelity said it could not change the transactions after the fact, even though it was that who told him he could recharacterize all $4000 in March 2025.

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He has learned his lesson with this mess. But what should we do to deal with this year.

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I welcome any advice!

Thank you.

Re: recharacterized too much

fanfare — Sat, 29 Mar 2025 23:49:57 GMT

Duplicate post.

topic Re: recharacterized too much in Retirement tax questions

recharacterized too much

Re: recharacterized too much