Recharacterized IRA contribution to Roth - now over limit by $160?
I just realized I messed up with my retirement accounts this year. My income ended up being over the limit for a traditional IRA contribution, so I recharacterized to a Roth IRA. The problem is that with growth, the amount is now over by about $160.13 for my 2023 Roth contribution. I'm not sure what the best way to handle this is. Should I just fill out an excess contribution form online? Or can I call and somehow roll that $160.13 into my 2024 Roth contribution? Is that even possible? This is my first time dealing with recharacterization and I don't want to mess up and get hit with penalties. Any advice would be appreciated!
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Ruby Blake
You have a few options for handling the excess Roth IRA contribution. The simplest is probably to request a return of excess contributions (including the earnings on that excess portion). This needs to be done before your tax filing deadline (including extensions) to avoid the 6% excise tax penalty. If you want to keep the money in retirement accounts, you technically can't "roll forward" an excess contribution to the next tax year. However, you could withdraw the excess amount plus earnings, and then make a new contribution for 2024 (assuming you're eligible). Just be aware that the earnings on the withdrawn excess will be taxable income for 2023 and potentially subject to the 10% early withdrawal penalty if you're under 59½.
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Micah Franklin
•If I do the return of excess contributions, do I need to calculate the exact earnings myself or does the brokerage do that for me? And do they send any special tax forms that I need to wait for before filing my taxes?
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Ruby Blake
•Your brokerage will calculate the earnings attributable to the excess contribution when you request the return of excess. They have a specific formula they're required to use, so you don't need to figure it out yourself. Yes, you'll receive a 1099-R that will show the distribution, and Box 7 will have a code indicating it was a return of excess contributions. You should wait for this form before filing your taxes, as you'll need to report the earnings portion as income on your return.
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Ella Harper
I was in almost the exact same situation last year! I found out about taxr.ai (https://taxr.ai) after struggling with this exact problem. Their system analyzed my recharacterization and excess contribution situation and gave me really clear guidance on what forms I needed and how to report everything properly. It saved me from making a costly mistake with how to handle the earnings on the excess.
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PrinceJoe
•Did it help with calculating the earnings portion of the excess contribution? That's what I'm struggling with most right now.
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Brooklyn Knight
•I'm curious - did they recommend removing the excess or did they have some other strategy? My broker is giving me conflicting info about whether I can just apply it to next year instead of withdrawing.
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Ella Harper
•Yes, it actually walks you through the whole process including the earnings calculation, though as someone mentioned, your broker should be calculating this for you using the IRS-mandated formula. The tool confirmed what my broker had calculated and explained how to report it correctly. They recommended removing the excess contribution (plus associated earnings) before the tax filing deadline to avoid the 6% penalty. They explained that you can't technically "apply" an excess contribution to the next year directly - you need to remove the excess and then make a new contribution for the next year as a separate transaction.
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PrinceJoe
I tried taxr.ai after seeing this thread and it was really helpful! I was so confused about how to handle my excess Roth contribution after recharacterization, but their system actually explained exactly what forms I needed from my broker and how to fill everything out on my tax return. They even caught that I needed to report the earnings on the excess portion on a specific line of my 1040, which I would've completely missed. Really glad I found this before filing!
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Owen Devar
If you're having trouble getting answers from your broker about this, I'd recommend Claimyr (https://claimyr.com) to get through to the IRS directly. I had a similar recharacterization issue and needed an official ruling on how to handle it. Used their service to get connected to an IRS agent in about 15 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent walked me through the exact steps for my situation.
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Daniel Rivera
•How exactly does this work? Do they just connect you to the regular IRS line or is it some special access number? Seems too good to be true given how impossible it is to reach anyone there.
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Sophie Footman
•Yeah right. No way this actually gets you through to the IRS faster than calling yourself. They probably just put you on hold like everyone else and charge you for it. I've spent DAYS trying to reach someone about my tax issues.
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Owen Devar
•It actually connects you to the regular IRS customer service line, but they use a system that continually redials and navigates the phone tree until they get through to an agent. Then once they have an agent on the line, they call you and connect you directly. You don't have to sit on hold at all. They don't have any special access - they just automate the painful waiting process so you don't have to do it yourself. It's basically like having someone wait on hold for you and then they call you once they get through.
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Sophie Footman
I have to eat my words. After being super skeptical about Claimyr, I tried it in desperation because I needed answers about my excess IRA contribution ASAP. I was connected to an IRS agent in about 20 minutes! Got clear guidance about reporting the earnings on my excess contribution and how to handle the recharacterization on my tax forms. Saved me from making a mistake that would have triggered an audit flag. Sometimes being proven wrong is actually a good thing!
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Connor Rupert
Just wanted to add that if you decide to remove the excess contribution, make sure you specify to your brokerage that you want a "return of excess contributions" rather than just taking a normal distribution. The coding on the 1099-R will be different, and it matters for tax purposes!
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Molly Hansen
•Does this affect whether the 10% early withdrawal penalty applies? I'm under 59.5 and concerned about getting hit with that on top of paying taxes on the earnings.
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Connor Rupert
•Great question. For the excess contribution amount itself, the 10% early withdrawal penalty doesn't apply when you're doing a return of excess contributions. However, the earnings portion of the excess contribution will be subject to the 10% penalty if you're under 59½, unless you qualify for another exception. The correct coding on the 1099-R helps ensure that only the earnings portion gets the penalty, not the entire distribution. That's why it's so important to specifically request a "return of excess contributions" and not just take a regular withdrawal.
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Brady Clean
One other option to consider - if you haven't filed your 2023 taxes yet, you could withdraw the entire Roth contribution plus earnings and then NOT recharacterize at all. This would essentially "undo" your Roth contribution completely. Then you could contribute to a Traditional IRA and immediately do a backdoor Roth conversion if you're over the income limits. Might be cleaner than dealing with the excess contribution issue.
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Skylar Neal
•I think they already did the recharacterization from Traditional to Roth, not the other way around. They found out their income was too high for deductible Traditional IRA contributions, so they moved it to Roth, but now they're a bit over the Roth limit.
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