Roth IRA

Roth IRA Questions

Q. I converted my regular IRA to a Roth IRA back in January. I’ve just discovered that my adjusted gross income (AGI) will exceed the $100,000 conversion limitation this year. What should I do?

A. You can “recharacterize” your converted Roth IRA back to a traditional IRA without any penalty or tax. You’ve just got to do it prior to October 15 of the following year. Please note that we said the following year. In the example above, if the conversion was made in January of year 1, the recharacterization wouldn’t have to take place until October 15th of year 2… more than 20 months downstream! You’re also required to “un-convert” not only your original conversion amount, but also any of the earnings generated by that original conversion. So, just because you go over the AGI limitation, all is not lost. Contact your broker and he should be able to help you with the recharacterization back to a regular IRA account.

Q. I’ve heard from a friend that the Roth IRA AGI limitation is $100,000. I’ve heard from other friends that the actual AGI limitation is much higher. Which is it?

A. It depends on whether you’re talking about a “conversion” or a “contribution.”

If you’re talking about converting your regular IRA to a Roth IRA, then the AGI limitation is $100,000 for all filing categories. (Except for married filing separately folks, who are effectively prohibited from making a conversion regardless of their AGI, unless the couple is separated and has lived apart for the entire tax year.)

But, if you’re talking about making a contribution to a Roth IRA, then the rules are a bit different. The AGI limitations depend on your filing status. You can check them out in Part I of the series of Roth IRA articles.