Thanks for the advice! Just to clarify - are there income limits for Roth 401k contributions? I thought those were just for Roth IRAs.

You're absolutely right, and I should have been clearer. There are no income limits for Roth 401k contributions - those limits only apply to Roth IRAs. With your combined income, you would likely be in the phase-out range for direct Roth IRA contributions, but your Roth 401k contributions are completely fine regardless of income level. That's one advantage of the 401k version.

I wouldn't delay a major life decision like buying a house just for tax reasons. The benefits of homeownership typically outweigh any short-term tax optimization.

Good point. I guess I was just thinking about our experience where the timing of our home purchase affected which year we could first claim certain deductions. But you're right - probably not worth delaying such a major life decision.

Thanks for this advice. My income has actually decreased quite a bit since 2022 (lost my higher paying job). Would that potentially help me qualify for an Offer in Compromise? And is that something I can apply for myself or do I need a professional?

Yes, a significant decrease in income could definitely help qualify you for an Offer in Compromise. The IRS looks at your current income, expenses, asset equity, and future earning potential to determine if you can reasonably pay the full amount owed. You can absolutely apply yourself using Form 656, though it's a complex process requiring detailed financial documentation. There's a $205 application fee, but it's waived if you meet low-income certification guidelines. If you decide to go this route, be extremely thorough with your financial information. The IRS rejects most offers that are incomplete or don't accurately reflect your ability to pay. There are good resources on the IRS website to help you through the process if you want to try it yourself.

Did they charge you a lot in penalties? I'm in a similar situation and worried about how much extra I'll end up owing beyond the original taxes.

Would this documentation help reduce any tax liability though? Or is it just to explain the unusual situation if questioned?

It's primarily to explain the unusual situation if questioned during an audit. The documentation itself won't reduce your tax liability, as the property will still be treated as a non-primary residence for capital gains purposes. However, having this documentation ready could prevent potential complications if the IRS questions why you owned a property that wasn't your primary residence but also wasn't generating rental income. Without proper explanation, they might incorrectly assume it was an unreported rental property, which could trigger a more extensive audit.

Good point! In California we have totally different rules for property tax reassessments when property transfers between family members. The fed and state systems barely talk to each other.

Is there a deadline for when employers have to fix W-2 errors? My company is notoriously slow with correcting payroll issues and I'm worried if something's wrong with my 401k reporting, they'll take forever to fix it.

Employers are supposed to issue corrected W-2s (W-2c) as soon as they discover errors, but there's no strict deadline specifically for corrections. However, if you find an error, report it to your employer immediately - they should issue a W-2c within a reasonable time. If your company drags their feet, you can actually report the discrepancy directly on your tax return. The IRS has Form 4852 (Substitute for W-2) where you can report what you believe are the correct numbers based on your pay stubs if your employer won't fix their mistake in a timely manner.

Does the employer match count toward that limit? I'm putting in about $20k myself but with my employer's 6% match it would go over $24k.

I'm pretty sure my recharacterization was completed before the deadline (did it in mid-April 2024 for the 2023 contribution), but I had already filed my 2023 taxes in February. Does that mean I still need to amend to include the Form 8606, or can I just file the form separately?

You'll need to file an amended return (Form 1040-X) along with the Form 8606 for 2023. Since you already filed your original return without the 8606, you need to formally correct that with an amendment. If you hadn't filed yet when you did the recharacterization, you could have just included the 8606 with your original filing. But since you already filed without it, an amendment is necessary to establish your basis properly.

I used TurboTax last year for my backdoor Roth and had mixed results. It does have a section for Form 8606, but it doesn't specifically prompt you about recharacterizations. I had to know exactly what I was doing and override some of its suggestions.