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For the first 6 months of the year, I was an employee of a

company that didn't have any...
For the first 6 months of the year, I was an employee of a company that didn't have any kind of retirement plan. As such, I regularly contributed to my traditional IRA. I am now self-employed, and I have setup and contributed to a SEP-IRA.

In other words, I was not "an active participant of an employer-sponsored plan" for the first half of the year. But I am now.

I am aware that I will not be able to deduct any of these contributions that I made to my traditional IRA.

The contribution amount to the traditional IRA is $2,560.
I believe my Modified Adjusted Gross Income for the year will be at or less than $120,000.

According to my calculations, I believe that I am allowed to contribute this full amount to a Roth IRA. And, since I can't deduct these contributions, I would rather put them into a Roth account vs a traditional IRA.

My question:

Is it possible to "re-characterize" these contributions, and have them instead go into a Roth IRA? (I can setup a Roth account with the same company that I have my traditional IRA account with.)

Also, I don't currently have a Roth IRA. If re-characterization is possible, what is the time limitation I'm faced with. That is, can I open the Roth IRA and re-characterize any time before April 15th 2014? Or do I have to have the Roth account open by the end of the year. Or do I have to complete both by the end of the year 2013?

I have other funds in the Traditional IRA (e.g. from 2012). Does this affect a re-characterization?
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Answered in 28 minutes by:
11/20/2013
socrateaser
socrateaser, Lawyer
Category: Tax
Satisfied Customers: 39,354
Experience: Retired (mostly)
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Hello,

A recharacterization can be made from the Traditional to Roth IRA if accomplished no later than the date for filing of the taxpayer's individual tax return for the year in which the contributions to the Traditional IRA were originally made. IRS Form 8608 must be filed, along with a statement explaining the nature of the recharacterization.

Also, consider opening a self-employed 401(k) account. You can contribute far more money to this type of plan, than you can to an IRA -- and, you can contribute to a traditional or Roth IRA simultaneously. A very large proportion of your taxable income can be deferred in this manner.

Please let me know if my answer is helpful. And, thanks for using justanswer.com!
socrateaser
socrateaser, Lawyer
Category: Tax
Satisfied Customers: 39,354
Experience: Retired (mostly)
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socrateaser and 87 other Tax Specialists are ready to help you
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Hello again,

I see that you rated my service as "OK." Experience tells me that customers who rate at this level are generally not entirely satisfied with the service received. If you require further clarification or assistance with this question, please let me know and I will try to help.


Best wishes.
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Customer reply replied 4 years ago

> A recharacterization can be made from the Traditional to Roth IRA if accomplished no later than the date for filing of the taxpayer's individual tax return for the year in which the contributions to the Traditional IRA were originally made.


 


To clarify, in layman's terms, this basically means April 15th 2014?


 


> Also, I don't currently have a Roth IRA. If re-characterization is possible, what is the time limitation I'm faced with?


 


So you're saying it doesn't matter when I open the Roth IRA. So long as I do it, and get the re-characterization in before the deadline?


 


> I have other funds in the Traditional IRA (e.g. from 2012). Does this affect a re-characterization?


 


So this doesn't matter? I can re-characterize any contributions I made for 2013? (up to the proper limit for Roth IRA contributions as they apply to me)


 


> Also, consider opening a self-employed 401(k) account.


 


> I am now self-employed, and I have setup and contributed to a SEP-IRA.


 


Thank you for the advice. The SEP-IRA works better for me now as its flexibility allows me to invest in some "non-traditional" investments. Perhaps when I get to the point of maxing out my SEP-IRA I'll consider switching to a 401K.

To clarify, in layman's terms, this basically means April 15th 2014?

A: Correct.


> Also, I don't currently have a Roth IRA. If re-characterization is possible, what is the time limitation I'm faced with?


So you're saying it doesn't matter when I open the Roth IRA. So long as I do it, and get the re-characterization in before the deadline?

 

A: Correct.


So this doesn't matter? I can re-characterize any contributions I made for 2013? (up to the proper limit for Roth IRA contributions as they apply to me)

 

A: Only the contributions made in this tax year are eligible for recharacterization.


Please let me know if you need further assistance.

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