A tax situation - Regular IRE-to-Roth (and back)

Somewhat off-topic, but this just happened to me, and the info might help someone else.

Early in 2016, I moved some money from my regular IRA to my Roth, expecting to not make much money that year. I was out of work at the time, and just starting to get back in the stock market after being away for many years.

I blame this forum for many of the stock ideas that made me too much money this year, much of it in short term capital gains, because I’m still learning how to minimize that. This made me regret moving money into my Roth, because it would add to my taxes.

I discovered that you can return Roth money taken from a regular IRA until Tax Day, which this year is April 18. You can return all or part.


I told my broker how much I wanted to return - how much in cash, and how much in stocks. They added an amount that represented the share of the percentage of appreciation (for 2016) of the Roth as a whole, and transferred back that amount. They used the share price of the previous Friday.

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I had almost exactly the same scenario last year. The return on money previously removed from an IRA is called a recharacterization of funds.

And don’t forget about a Roth conversion, if you do want to contribute to a Roth but your income is “too high.” Make your desired contribution up to the $5,500 maximum (plus catch-up, if applicable) to a Traditional IRA. Even if you can’t deduct it, you can contribute. Then have your broker immediately convert it to a Roth. Easy as that–they usually have the forms online for you to fill out and fax in.

You have to do the conversion by 12/31; you don’t get until Tax Day of the next year like you do for contributions and recharacterizations. It gets a little more complicated if you have any appreciation between your contribution and conversion.

Voila! Backdoor Roth contribution–entirely legal and above-board, nothing shady about it.

[Obligatory disclaimer: Of course, you should always run free, internet tax advice by your accountant (or at least TurboTax).]

They call me,

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