Ed Slott was named "The Best" source for IRA advice by The Wall Street Journal and called "America's IRA Expert" by Mutual Funds Magazine. He is a widely recognized professional speaker and educator specializing in retirement distribution planning, teaching both financial advisors and consumers how to best take advantage of our complicated tax code.

-- Have something you want to ask Ed? Send your questions to mailbag@irahelp.com

This week, IRA expert Ed Slott fields questions about recharacterization provisions for Roth IRAs and making contributions in a spouse’s name.

Question 1:

I am 70-1/2 this year and still working and contributing to my 401(k). I plan to retire this year. I also want my wife (not earning an income) to take out a Roth IRA this year. I am wondering how much I have to earn pre-retirement for my wife and I to take out Roth IRAs? Or I guess better said, does my contribution to my 401(k) need to be deducted from my earnings amount before figuring if I have enough left for Roth contributions? If I do not have enough earnings for my wife and I before I retire, can I just do the spousal Roth IRA for my wife without doing a Roth contribution for myself? (She is younger). I know there are a lot of questions here, but would really appreciate an answer. I am trying to figure my required minimum distribution (RMD) this year as well as my contributions. Thank you.


The first requirement of making an IRA or Roth IRA contribution is that you must have “compensation.” In your case, compensation is probably your earned income. The next issue is age. Once you are in the year you turn 70 ½, you can no longer make an IRA contribution (there is an exception for SEPs and SIMPLEs if you are still working for that employer) but you can continue to make Roth contributions – so you’re okay on that front.  

Finally, there are income limits for making Roth contributions. For individuals who are married and filing jointly, the ability to make a Roth IRA contribution phases out between $173,000 and $183,000 in income. This is a modified adjusted gross income (MAGI) number so generally it will be the amount that goes on your tax return as taxable income. For a complete description of MAGI see IRS Publication 590, which is available on the IRS website, http://www.irs.gov/. On the left hand side of the screen, click on Forms and Publications.

As long as you have enough earned income, you can also make contributions to an IRA or Roth IRA in the name of your spouse. Her age will be the determining factor if you want to make an IRA contribution for her. An IRA contribution for her will be deductible if your income is less than $173,000 and the deduction would be phased out for income between $173,000 and $183,000. These rules can also be found in IRS Publication 590. You could also make a Roth IRA contribution for her, especially if you are not looking to take a deduction for the contribution. The above income rules would also apply to a Roth contribution you make for her.


I transferred money directly within a 403b to a newly established Roth IRA.  I now want to reverse this transaction, given the pending tax liability. Can this be done? If not, what, if anything, can be done to eliminate or reduce the tax impact?


If the funds were transferred from the 403(b) to a Roth 403(b) option offered by the 403(b) plan, the transaction cannot be reversed. There is no recharacterization provision for what the IRS is calling in-plan Roth rollovers (IPRR). If the funds were transferred from the 403(b) plan to a Roth IRA held outside of the 403(b) plan, the tax code allows for a recharacterization, which will allow you to “undo” the conversion and reverse the tax liability.  

You have until October 15th of the year after the conversion to do a recharacterization. Right now you can recharacterize conversions that were done in 2011 or in 2012. The funds must go to an IRA in a direct transfer, not as a 60-day rollover.  Both the Roth and IRA custodians must be notified of the recharacterization. The recharacterization request would be for the amount of the conversion you want to reverse. Then, a net income calculation would be completed, earnings or losses would be allocated to the recharacterized amount, and the net amount would be moved to the IRA.  

You should check with the Roth IRA custodian for the procedures and paperwork they require in order to accomplish the rollover. Partial recharacterizations are allowed as well.

-- Have something you want to ask Ed? Send your questions to mailbag@irahelp.com





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