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How long for funds to settle in Trad IRA prior to ROTH IRA recharacterization?
Posted on 1/18/23 at 11:15 pm
Posted on 1/18/23 at 11:15 pm
Question in the title.
Fully funded traditional IRA for 2023 and want to recharacterize to ROTH IRA. Funds are currently sitting in cash in Trad IRA...ideally, wanting to avoid any market changes prior to recharacterization so there aren't any gains/losses to account for on 2023 taxes.
Is there any amount of time the funds need to be in Traditional prior to recharacterizing? Thanks.
Fully funded traditional IRA for 2023 and want to recharacterize to ROTH IRA. Funds are currently sitting in cash in Trad IRA...ideally, wanting to avoid any market changes prior to recharacterization so there aren't any gains/losses to account for on 2023 taxes.
Is there any amount of time the funds need to be in Traditional prior to recharacterizing? Thanks.
4
Posted on 1/18/23 at 11:20 pm to lynxcat
Normally it settles within 3 days, but would imagine that would be dependent on your bank and brokerage service.
Posted on 1/19/23 at 6:47 am to lynxcat
quote:
Is there any amount of time the funds need to be in Traditional prior to recharacterizing? Thanks.
No. You can convert the second it's cleared in your settlement fund. I'm sure you know, but make sure you don't have any other IRAs lying around. That pro-rata rule is a bitch.
Posted on 1/19/23 at 7:29 am to GEAUXT
Thanks, all funds are after tax, non deductible contributions so the intention is to recharacterize without creating taxes owed.
Posted on 1/19/23 at 8:38 am to lynxcat
I use Fidelity and I converted to ROTH the day after funding the traditional IRA account.
So you funded your traditional IRA and decided to invest the funds while they were still in the traditional IRA instead of just waiting for the ROTH conversion?
So you funded your traditional IRA and decided to invest the funds while they were still in the traditional IRA instead of just waiting for the ROTH conversion?
Posted on 1/19/23 at 8:48 am to Bacchus
quote:
I use Fidelity and I converted to ROTH the day after funding the traditional IRA account.
Helpful, sounds like I was overthinking it.
quote:
So you funded your traditional IRA and decided to invest the funds while they were still in the traditional IRA instead of just waiting for the ROTH conversion?
Have not invested funds yet while in Traditional. Waiting until ROTH.
Posted on 1/19/23 at 8:55 am to lynxcat
quote:
Funds are currently sitting in cash in Trad IRA...ideally, wanting to avoid any market changes prior to recharacterization so there aren't any gains/losses to account for on 2023 taxes.
If the funds are in cash still, what market changes would cause any gains/losses on a cash amount? The funds aren't in the market yet. Even if you let the money sit for 30 days and you accrued interest, the interest would be in a tax deferred account still, so you wouldn't have any tax impacts, especially since you contributed after-tax dollars to the traditional IRA.
Posted on 1/19/23 at 11:05 am to lynxcat
I am assuming you are doing a back door.
It's a conversion, not a recharacterization. A recharacterization still requires you to follow the contribution limit rules, which I assuem you are trying to avoid.
Just don't want you pushing the wrong button.
People freak out about this because of the IRS step transaction rules. In therory, the IRS COULD try to apply those here. In reality, no one has ever seen that happen.
Also, someone commented about the pro rata rule. Make sure ALL your non-Roth IRAs (including rollovers) are all after-tax money, or else you are going to trip on an issue here. You can't avoid the issue by having one account with pre-tax (such as a rollover) and one only having after-tax.
It's a conversion, not a recharacterization. A recharacterization still requires you to follow the contribution limit rules, which I assuem you are trying to avoid.
Just don't want you pushing the wrong button.
People freak out about this because of the IRS step transaction rules. In therory, the IRS COULD try to apply those here. In reality, no one has ever seen that happen.
Also, someone commented about the pro rata rule. Make sure ALL your non-Roth IRAs (including rollovers) are all after-tax money, or else you are going to trip on an issue here. You can't avoid the issue by having one account with pre-tax (such as a rollover) and one only having after-tax.
Posted on 1/19/23 at 11:30 am to LSUFanHouston
I think it would be a recharacterization…it’s $6500 for 2023 and nothing else is in the Trad IRA. No other Trad IRAs.
It’s my wife’s and we file jointly, if that has any impact.
It’s my wife’s and we file jointly, if that has any impact.
This post was edited on 1/19/23 at 11:31 am
Posted on 1/19/23 at 11:35 am to lynxcat
quote:
I think it would be a recharacterization…it’s $6500 for 2023 and nothing else is in the Trad IRA. No other Trad IRAs.
What is your expected joint adjusted gross income?
Posted on 1/19/23 at 12:40 pm to lynxcat
quote:A recharacterization only references contributions you change your mind about, like an IRA contribution that you want to recharacterize to a Roth contribution, which doesn't matter if your AGI is low enough. But if you're doing a back-door Roth because your income is too high for a typical Roth contribution, that's a conversion because you are getting around the income limit to put money in a Roth by legally putting a contribution (albeit non-deductible) in your IRA and then immediately converting.
I think it would be a recharacterization…it’s $6500 for 2023 and nothing else is in the Trad IRA. No other Trad IRAs.
I think we all know what you're doing, but the term does make a difference.
Posted on 1/19/23 at 1:56 pm to LSUFanHouston
quote:
What is your expected joint adjusted gross income?
Above phaseouts, both working. Cannot contribute to Roth IRA directly and cannot deduct Traditional IRA contributions.
Posted on 1/20/23 at 10:21 am to lynxcat
quote:OK then you are doing:
Above phaseouts, both working. Cannot contribute to Roth IRA directly and cannot deduct Traditional IRA contributions.
Non-deductible IRA contribution > Roth conversion
You can convert as soon as the cash settles in the account from your non-deductible contribution. No need to wait any longer.
Posted on 1/20/23 at 12:15 pm to Niner
Thanks for the details!
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