Oh that's really good to know! I actually do have an old 401k that I rolled into a Traditional IRA last year. So if I did conversion instead of recharacterization, I'd have to convert some of that old 401k money too and pay taxes on it?

Yes, that's exactly the issue. With the pro-rata rule, you can't cherry-pick which dollars to convert. If you have $9,500 in non-deductible contributions and, say, $40,000 in pre-tax money from your old 401k rollover (all in Traditional IRAs), then any conversion would be proportionally taxable. If you converted $9,500, about 19% would be considered non-taxable (your non-deductible portion) and 81% would be taxable. The IRS looks at all your Traditional IRAs as one big bucket for this calculation. Recharacterization bypasses this completely since it's treated as if you never contributed to the Traditional IRA in the first place.

I did a recharacterization with Fidelity last year. Had to call - couldn't find any way to do it online. The phone rep was actually really helpful and processed it while I was on the call. Had to confirm I understood the tax implications but it was pretty straightforward once I got through to someone.

Did you have to file any special forms when you got them to stop requiring repayment? I'm worried if I just stop paying the $500 installments it'll trigger some kind of automatic collection process. Did they give you any pushback or was it fairly straightforward once you showed them the correct closing date?

I had to file a Form 843 (Claim for Refund and Request for Abatement) along with a detailed letter explaining the situation. I attached copies of my closing documents clearly showing the 2009 date, plus copies of my original tax returns where I made the mistake. The IRS did initially send some automated notices when I stopped making the payments. That's why it's important to be proactive rather than just stopping. They eventually processed my claim and sent a letter confirming I was no longer responsible for the remaining payments. It took about 5 months total from submission to resolution.

That's why I always tell people to triple-check dates on major tax credits! The government loves to create these weird cutoff periods that can cost you thousands. I had a client who missed the solar tax credit by ONE DAY because of installation timing. Brutal.

Wait the $83,500 limit is per employer?? I thought it was a total annual limit across all accounts? Does that mean if I contribute to a 401k at two different employers in the same year I could potentially contribute up to $167,000 total??

Yes, the $83,500 annual addition limit (for 2024) is technically per-employer. So if you work for two completely unrelated employers who each have their own 401(k) plan, you could potentially contribute up to the limit in each plan. However, your personal elective deferral limit ($23,000 for 2024, or $30,500 if you're over 50) is a combined limit across all employer plans. So while you can't defer more than $23,000 total between both employers' plans, you could still potentially reach the annual addition limit at each employer through employer contributions and after-tax contributions.

This is super helpful. What about if some of my money went to ESPP (employee stock purchase plan)? Does that count toward the $83.5k limit? And also do you know if we can just leave excess contributions in there and pay the penalty? Is it just 6% per year or are there other issues?

That's really helpful! I hadn't thought about breaking it down hourly like that. My daughter is there from 7:30am-5:30pm most days, with regular program hours being 9am-3pm, so that's 4 extra hours daily that are clearly for childcare purposes. Summer is about 8 weeks when she's there full-time. Does this sound like a reasonable approach?

That approach sounds perfect for your situation. With regular program hours of 9am-3pm and your daughter attending 7:30am-5:30pm, you've got 4 hours of extended care each day that clearly qualifies for the credit. For the summer period (8 weeks), you can count all hours as qualified childcare expenses since regular school wouldn't be in session. The IRS recognizes that summer programs serve a dual purpose of education and allowing parents to work, so the full cost during that period typically qualifies regardless of content.

Actually, the Child and Dependent Care Credit maximum was temporarily increased a couple years ago but has reverted back to the lower amounts for 2025 filing. Always check the current year's limits because Congress keeps changing these numbers.

Do you have a template for that written plan? Or did you have your accountant create it? I'm trying to figure out if this is something we can do ourselves or if we need professional help with it.

I created it myself based on some research, then had my accountant review it. It doesn't need to be super complex - mine is about 2 pages. It basically states that the corporation will reimburse employees (including shareholder-employees) for health insurance premiums up to a certain amount annually. Key elements to include: effective date, eligible employees, what expenses are covered, maximum reimbursement amounts, how/when reimbursements will be processed, and documentation requirements (employees need to submit proof of premium payments). You should also state that it's intended to comply with relevant tax regulations.

I did this with my S-corp and it works well, but make sure you understand the income reporting. The marketplace uses MAGI (modified adjusted gross income) to determine subsidies, which includes your W-2 wages plus business profits passed through to your personal return.