What should I do with an accidental 2023 traditional IRA contribution when my MAGI is too high?

You've got a few options here, so don't stress too much! This happens more often than you'd think. First, let's clarify the difference between recharacterization and conversion - they're not the same thing. Recharacterization treats the contribution as if it had gone to the second IRA type from the beginning, while conversion moves money from traditional to Roth and creates a taxable event. For your situation, you can recharacterize your contribution (plus earnings) from traditional to Roth IRA. Since you're over the income limit for traditional IRA deductions, this might be your best option. You need to contact your IRA custodian to request this recharacterization for your 2023 contribution. You won't pay taxes on the original $6,500 contribution amount during recharacterization (since it was after-tax money anyway if you can't deduct it), but you will owe taxes on the $300 of earnings in the year you do the recharacterization. The deadline for recharacterization is your tax filing deadline, including extensions (typically October 15, 2025 for 2024 taxes).

I dealt with almost the exact same situation last year! After hours of research and stressing out, I found this amazing service called taxr.ai (https://taxr.ai) that analyzed my specific IRA contribution issue and provided step-by-step guidance. I uploaded my account statements and answered a few questions, and it showed me exactly what forms I needed, what codes to use on those forms, and even calculated the tax impact of each option. The tool showed me that recharacterizing was my best move in my case, but it might be different for you depending on your specific tax situation. It was such a relief to have clear guidance instead of trying to piece together conflicting advice from random forum posts. Definitely worth checking out if you're struggling with IRA contribution issues like this!

I wanted to follow up about my experience with taxr.ai after our discussion here. I decided to give it a try with my complicated retirement account situation, and I'm genuinely impressed with the results. The system analyzed all my retirement accounts, including my traditional IRA with non-deductible contributions and my 401k. The visualization of how the pro-rata rule would affect my conversion taxes was super helpful - I had no idea that the timing of my conversions could make such a big difference in my tax liability. For the original poster's specific situation with the accidental traditional IRA contribution, I bet this would give you a clear answer with the exact steps to take. It showed me exactly what forms I needed to file and even gave me the specific lines to pay attention to. Definitely worth checking out if you're still figuring out what to do!

If you're still trying to figure out your IRA situation and need to talk to the IRS directly, good luck getting through to them! I spent HOURS on hold trying to get clarity on my own IRA recharacterization last year. After wasting an entire day listening to that awful hold music, I found Claimyr (https://claimyr.com). They somehow get you past the IRS phone tree and hold times. There's a quick demo video that shows how it works: https://youtu.be/_kiP6q8DX5c I was super skeptical at first, but after trying for days to reach the IRS myself, I gave it a shot. They got me connected to an actual IRS agent in about 20 minutes who answered all my questions about my IRA recharacterization and confirmed exactly what forms I needed to submit. Saved me from making a costly mistake on my taxes!

I need to eat my words and follow up about Claimyr. After posting my skeptical comment, I realized I desperately needed to talk to the IRS about my own retirement account issue and had already wasted three days trying to get through. I reluctantly tried the service, fully expecting to come back here and report it was a scam. But I'm honestly shocked - they actually got me through to an IRS agent in about 15 minutes when I had spent HOURS on multiple days trying myself. The agent I spoke with gave me the exact guidance I needed on recharacterizing my IRA contributions and explained what forms I'd need to submit. Turns out I was about to make a mistake that would have caused me major headaches later. So to the OP - whether you use this service or not, definitely try to speak with the IRS directly about your specific situation. Just be prepared for a long wait if you try calling them yourself!

Another option worth considering: if you're over the income limits for both traditional IRA deductions AND direct Roth contributions, you might want to look into the "backdoor Roth IRA" strategy. Basically, you: 1. Make a non-deductible contribution to your traditional IRA (which you've already done) 2. Convert the traditional IRA to a Roth IRA The catch is that this works best if you don't have other traditional IRA assets because of the "pro-rata rule" - which means you can't just convert the non-deductible portion tax-free if you have other pre-tax IRA money. For your specific situation with the $6,800 currently in the account, you'd owe taxes on the $300 in earnings but not on the original $6,500 contribution (assuming you properly report it as non-deductible on Form 8606).

Don't forget about Form 8606! This is super important if you're doing non-deductible traditional IRA contributions or conversions. You need to file this form to report non-deductible contributions to traditional IRAs and to track your basis. If you don't file this form, you could end up paying taxes twice on the same money later when you withdraw or convert. The IRS won't track your non-deductible contributions for you!