OOPS -- mistake contributing to Roth IRA

[Stan Brown]

A few days ago, I put $1100 into my Roth IRA. This is within my 2016
contribution limits. But I forgot that contributing that $1100 to my
Roth instead of my traditional IRA means another $800 of my Social
Security benefits are taxable. So I'd like to undo the Roth
contribution and then turn around and contribute that $1100 to my
traditional IRA.

The Roth IRA is at Vanguard and is worth about $8100. The $1100 went
into BND and is the only money in that fund. My $1100 in BND is now
worth about $3.00 less than when I invested; the Roth IRA as a whole
has also declined, though I'm not sure of the exact amount.

Can I just take the $1100 out of the Roth and put it in the
traditional? Or do I have to go through the whole recharacterization
thing? If so, I think I'll probably just eat the taxes on the $800
and chalk this up as a learning experience.

--
Stan Brown, Oak Road Systems, Tompkins County, New York, USA
http://BrownMath.com/
http://OakRoadSystems.com/
Shikata ga nai...

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[John Levine]

>The Roth IRA is at Vanguard and is worth about $8100. The $1100 went
>into BND and is the only money in that fund. My $1100 in BND is now
>worth about $3.00 less than when I invested; the Roth IRA as a whole
>has also declined, though I'm not sure of the exact amount.
>
>Can I just take the $1100 out of the Roth and put it in the
>traditional?

I made a similar mistake a while ago and found that the people
at Vanguard are amazingly well informed about this stuff. Call
them up and explain the problem and they'll tell you what
they can do. I think they were able to back out my money
and recharacterize it retroactively since it was within the tax year.

[Arthur Rubin]

On Thursday, September 1, 2016 at 5:20:05 PM UTC-7, Stan Brown wrote:
> A few days ago, I put $1100 into my Roth IRA. This is within my 2016
> contribution limits. But I forgot that contributing that $1100 to my
> Roth instead of my traditional IRA means another $800 of my Social
> Security benefits are taxable. So I'd like to undo the Roth
> contribution and then turn around and contribute that $1100 to my
> traditional IRA.
>
> The Roth IRA is at Vanguard and is worth about $8100. The $1100 went
> into BND and is the only money in that fund. My $1100 in BND is now
> worth about $3.00 less than when I invested; the Roth IRA as a whole
> has also declined, though I'm not sure of the exact amount.
>
> Can I just take the $1100 out of the Roth and put it in the
> traditional? Or do I have to go through the whole recharacterization
> thing? If so, I think I'll probably just eat the taxes on the $800
> and chalk this up as a learning experience.

>From Publication 590-A

>To recharacterize a contribution, you generally must
>have the contribution transferred from the first IRA (the
>one to which it was made) to the second IRA in a
>trustee-to-trustee transfer. If the transfer is made by the
>due date (including extensions) for your tax return for the
>tax year during which the contribution was made, you can
>elect to treat the contribution as having been originally
>made to the second IRA instead of to the first IRA.

You transfer the amount plus earnings (easily determined as it's a new fund), and the entire $1100 is considered contributed to the second IRA.

I _think_ Vanguard would be helpful, although (not a tax matter) they have recently (this decade, anyway) been required to increase the commissions charged.

--
Arthur L. Rubin, AFSP, CRTP, Brea, CA

[John Levine]

>I _think_ Vanguard would be helpful, although (not a tax matter) they have recently (this decade, anyway) been required to increase the commissions charged.

The what? Vanguard doesn't charge any commissions for transactions on
their mutual funds. They do charge commissions if you buy and sell
stocks (other than their ETFs) or someone else's mutual funds.

As I said, I had a similar problem a few years back, and one phone
call got it resolved.

[Stan Brown]

On Fri, 2 Sep 2016 12:41:16 EDT, John Levine wrote:
>
> >I _think_ Vanguard would be helpful, although (not a tax matter) they have recently (this decade, anyway) been required to increase the commissions charged.
>
> The what? Vanguard doesn't charge any commissions for transactions on
> their mutual funds. They do charge commissions if you buy and sell
> stocks (other than their ETFs) or someone else's mutual funds.
>
> As I said, I had a similar problem a few years back, and one phone
> call got it resolved.

Thanks, John and Arthur, for replying.

Wait times at Vanguard have been ridiculous lately, but I'll try
calling them as you suggest.

--
Stan Brown, Oak Road Systems, Tompkins County, New York, USA
http://BrownMath.com/
http://OakRoadSystems.com/
Shikata ga nai...

[Stan Brown]

On Fri, 2 Sep 2016 12:41:16 EDT, John Levine wrote:
>

> >I _think_ Vanguard would be helpful, although (not a tax matter) they have recently (this decade, anyway) been required to increase the commissions charged.
>
> The what? Vanguard doesn't charge any commissions for transactions on
> their mutual funds. They do charge commissions if you buy and sell
> stocks (other than their ETFs) or someone else's mutual funds.
>
> As I said, I had a similar problem a few years back, and one phone
> call got it resolved.

You were absolutely right in your advice, John. I was apprehensive,
because getting a rollover letter of acceptance in a form that Mass
Mutual will accept has been a nightmare (and I still don't have it).
But after the latest episode of that, I broached the
recharacterization and the guy said, "let me transfer you to a
recharacterization specialist". She did everything while I was on the
phone, confirming each step with me. And it all shows in my pending
transactions this evening.

And there are no tax consequences. She says I'll get a 1099-R at the
end of the year and I'll have to file an 8606, but I saved a couple
of hundred bucks in taxes on Social Security.

--
Stan Brown, Oak Road Systems, Tompkins County, New York, USA
http://BrownMath.com/
http://OakRoadSystems.com/
Shikata ga nai...