Excess Contribution to Roth IRA

[mattslegacy]

I've discovered while doing my taxes that with my wife and my combined income is above the threshold makes us ineligible to contribute to a Roth IRA. I have been doing the backdoor method and converting for years, where as she has been contributing to a Roth. Her raise put us over the limit this year.

I am thinking that withdrawing the earnings will be the cleanest way to resolve this issue. My question, is once the funds are withdrawn, can we just turn around and put that money in a traditional IRA for her (towards 2021), and convert it?

[MinhT1]

Yes. You can withdraw the excess Roth contributions (together with any related earnings.

Then she can contribute to a nondeductible Traditional IRA (before April 18, 2022) and do a backdoor Roth conversion. 

[mattslegacy]

Thank you,

I was just talking to Vanguard, and the rep recommended Recharacterizing, because:

1) The earnings are reportable, but not subject to the early withdrawal 10% pentalty

2) Though I'll pay taxes on the earnings, they'll be earmarked on From 8606 that I've paid taxes for the future

3) I could turn around and click 'convert,' and convert that money right back into the Roth

Thoughts? Also, this is my understanding, unless I'm missing something

[DavidD66]

MihnT1 is correct, and so is your Vanguard rep.  I recommend you recharacterize.