In Dec 07 I converted my entire traditional IRA ($43000) to a Roth. Upon doing my taxes, I realized that a portion of my AGI would be taxed at a higher bracket. I recharacterized $8000 back into the traditional IRA in March 08. Turbo tax is telling me that the $8000 is an illegal contribution. It is treating this as a new IRA contribution, which it really isn’t by my thinking. What gives?
Sherry
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Bessie
It is an illegal contribution. When you transferred your money into a Roth, you became liable for the income tax due on the entire $43,000. You were assessed the tax for 2007.
In 2008, you may only contribute up to your annual limit to your IRA. I’m not sure why you would try to put the money back in the first place, but your trustee should return the money to you. If you don’t move the money out of there, you will pay an excess contribution tax on it every year until you do.
Speak to a Financial Planner and/or licensed Tax Preparer in your area who can help you with your retirement planning. The $43,000 withdrawal does count toward your AGI, and it puts you into a higher tax bracket. This is why you want to get professional advice.
Good luck to you!
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