Mar
14
I have Roth and Traditional IRA accounts and I exceeded my Roth limit, so I wanted to transfer some funds into my Traditional IRA account. Does anybody know if it is at all possible and if yes, what is the right way to do it?
Roth IRA, Traditional IRA, 401K
IRA Questions and Answers
2 comments so far...
WHY DONT YOU JUST OPEN ANOTHER ROTH OR JUST GO WITH STRAIGHT MUTAUL FUNDS?
Yes. You do what’s called a “recharacterization”. Notify the broker or bank that has your IRA that you want to recharacterize it from a Roth to a Traditional. There will probably be a form to fill out and possibly a fee (maybe something like $25). They will calculate the earnings on your contribution that you are recharacterizing and transfer the contribution plus the earnings to the Traditional IRA.
As far as IRS penalties, my understanding is that if you do the recharacterization before the due date for the tax return for the year the contribution was made for, there are no penalties. So if this is a 2007 contribution, you’re fine. If you don’t do it by then (e.g. if this was a 2006 contribution), there are IRS penalties (6% per year, I think). There’s some comments about it being the due date (including extensions) so that might mean you actually have until October because of the automatic 6-month extension that is available, but I’m not sure about that.
See Publication 590 (http://www.irs.gov/pub/irs-pdf/p590.pdf) page 29 and 48.
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