IRA Rollover

Question: Had to recharacterize Roth contributions to Traditional IRA… now back to Roth in 2010?

In 2009 my husband and I each contributed $5000 to our Roth IRAs. We are a good 30 years from retirement. When we got our tax returns in order a couple of months ago we realized we had exceeded the limit for Roth and we had to recharacterize these contributions into Traditional IRAs. Now that 2010 is here and there is no income limit for rollovers, would we have to pay taxes on the rollover even though the contributions were already taxed in 2009?

A related question: If we were to contribute another $5k each for 2010 to the Traditional IRAs could we rollover this to the IRAs by the end of FY2010? In other words, is it possible to add the 2010 funds and then rollover? We are above the deductible income limit – so what taxes would then have to be paid in this scenario?

Answer: You are misusing the term “rollover.” If you are above the deductible income limit for traditional IRAs, it makes no sense to contribute to them – especially since you are 30 years away from retirement. Make your 2010 contributions directly into the Roth IRA(s) instead.

If you want to convert the traditional IRAs to Roths, 2010 is the year to do so because you can spread the tax bite out over two years.

The Marathon (:60)

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