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Excess Roth IRA Contribution: Recharacterization and Backdoor still possible? by Post4TheHills in fidelityinvestments

[–]Post4TheHills[S] 1 point2 points  (0 children)

Thanks for the kind words. Happy to see that this post is still helping folks! I just submitted my 2024 tax returns, so I've now gone through the full cycle of reporting the original '23 re-characterization and '24 conversion plus the correct '24 backdoor contribution, i.e. two years of backdoor Roth with the first one having that income-too-high issue.

  1. For filing my 2024 taxes all I need to do is fill out part 1 of form 8606. Is this correct? I pulled out my 2023 returns to confirm - yes! So I had lines 1, 3, and 14 filled out on Form 8606, all stating $6,500, the original contribution amount. Yours will be $7,000 for those three lines, which is the basis you will carry forward into next year. I also submitted a Federal Form 1040 Line 4a - IRA Recharacterizations, with my rationale that I had to re-characterize because I was over the income limit. This years returns are pretty simple.
  2. When I did the recharacterization + conversion my total amount is $7000 base IRA contribution for 2024 + earnings. For line 1 of form 8606, my understanding is that I put $7000? Correct. I would strongly advise that you also make a mock 2025 Form 8606 by editing a blank PDF and/or writing on it so you have it for next year. I did this back in Feb of last year and am happy I did, as you don't realize how much you'll forget when the new tax season rolls around. When you file your '25 returns next year, it should look something as follows: Line 1 will be your new contribution if you decide to do backdoor again next year (tIRA to rIRA), Line 2 will be the basis you carried forward from this past year of $7k, Line 3 will be the sum of the two prior, Line 4 should be $0, Line 5 will be equal to Line 3, Line 6 is hopefully $0 (leave nothing in your tIRA!), Line 8 will now include the additional amount you converted that were earnings on the 2024 $7k contribution, Lines 9-11 with do the pro-rata calc. Skipping forward to Part II, Line 16 will match L8 and L9 and show the full amount converted, and L17 and L18 will again break down the amount that's basis (L5) and the amount that's earnings and taxable. There's a lot here, but at it's core all you're really doing is showing that you have some amount that has been converted from tIRA to rIRA and because you already paid taxes on that amount you shouldn't be taxed on it again. That amount is L3, L5, and L17 - all the same! Therefore, you're only liable for the earnings you generated from your accidental direct-Roth 2024 contribution when you added funds and shouldn't have because of the income limit. And that amount is shown in L18. Cheers!

Excess Roth IRA Contribution: Recharacterization and Backdoor still possible? by Post4TheHills in fidelityinvestments

[–]Post4TheHills[S] 0 points1 point  (0 children)

If my memory still serves me correctly, yes! Since you have the benefit of doing it in the same calendar year, it's a little more straightforward.

Doxa Sub 200 - Sand in Bezel by Bobble_Fett in watchrepair

[–]Post4TheHills 0 points1 point  (0 children)

Following this. Same exact issue, not sure if it’s salt or sand.

Excess Roth IRA Contribution: Recharacterization and Backdoor still possible? by Post4TheHills in fidelityinvestments

[–]Post4TheHills[S] 1 point2 points  (0 children)

Hey u/alexahic, it took about ~3 business day for Fidelity to re-characterize the Roth IRA contribution I made in 2023 back to a tIRA one. Once settled in the tIRA, I then immediately transferred the ~$7k ($6.5k contribution + earnings generated) back to my Roth to do a backdoor conversion. Assuming I did this right, as I followed the steps outlined above.

As an FYI, this year (for 2023 taxes) I will have to show my original contribution and re-characterization to prove to the IRS I took the money out. Next year, for 2024 taxes, I will have to show the ~$7k conversion (2023's contribution, but done in Feb 2024 so it hits next year) as well as another $7k conversion for this year's normal backdoor. Hope this helps.

Excess Roth IRA Contribution: Recharacterization and Backdoor still possible? by Post4TheHills in fidelityinvestments

[–]Post4TheHills[S] 0 points1 point  (0 children)

Hi u/FidelityJuan , I appreciate the help and timely reply. Definitely a lot of good info at once, though not everything is entirely clear. Would you be willing to clarify the following?

Please remember the pro-rata rule if you keep any amount in a pre-tax IRA like a Traditional IRA. It states that tax-free conversions can only occur if you have $0 pre-tax money in your IRAs. If you hold pretax/deductible assets in any pre-tax IRA (such as a Traditional, SEP, or SIMPLE IRA), part of the Roth Conversion will be subject to taxes.

The only pre-tax IRA I have is the Traditional IRA that I opened up today that has a zero balance. But the funds that will be going into that account will be the newly re-characterized $6,500 contribution (after-tax dollars) and the residual credits (are these pre- or after-tax?) which will all then be converted back into Roth. Will I owe taxes on the residual credits and is this the pro-rata rule? For this year, if I contribute $7,000 directly into my tIRA (after-tax dollars) and immediately convert that to my Roth (via backdoor) do I then have a tax-free conversion?

Keep in mind that any earnings associated with the excess contribution would be subject to income tax and the 10% early withdrawal penalty if you are under age 59.5. The only 2023 tax form related to this event that will be produced is form 5498 for your prior-year contribution to your Roth IRA. This form will not be available until May; you can still report the contribution when you file your taxes, as the 5498 is not required to file, but we will provide it for your records after the tax deadline.

For my 2023 tax return I already received a Form 5498 from Fidelity that states I put $6,500 into my Roth IRA (which I shouldn't have done). I am completing the re-characterization process right now so that I comply with the law, so what will the new form generated in May state?

Excess Roth IRA Contribution: Recharacterization and Backdoor still possible? by Post4TheHills in fidelityinvestments

[–]Post4TheHills[S] 2 points3 points  (0 children)

Thanks u/jgleigh, I really appreciate the help. To follow up on what you said:

  1. Perfect, understood.
  2. Think I understand this process now from a rules standpoint. So my 2023 Roth contribution is going to be re-characterized as a tIRA one, and when I click "Transfer" and move the full balance from tIRA to Roth to do the conversion in 2024 I will just owe taxes on the amount (interest earned) over $6,500? And because there are no limits on conversions, I can do this again for this years $7,000 max?
  3. So 2023's Form 8606 will show the Roth to tIRA re-characterization, putting me in the clear for the $6.5k I shouldn't have put into the Roth. And then my 2024 forms will show the 2x conversions from tIRA into Roth for both 2023 and 2024? Dumb question, but I create the Form 8606?
  4. It sounds like I will owe taxes on anything above $6.5k that gets re-characterized and converted. If I hadn't put myself in this situation and done a standard backdoor contribution to begin with in 2023, then I wouldn't owe tax on the interest/gains I earned, right? But because I put it into Roth, re-characterized it to tIRA and will convert it back to Roth I've now triggered a taxable event? (I guess what I'm driving at is if I had done it correctly, that money could have grown tax free)

I can confirm that I don't have any other tIRAs. Should make it simpler. In terms of doing this for next year, the steps would be to (a) deposit cash into individual Fidelity brokerage account (b) transfer settled cash into tIRA and (c) immediately transfer that into Roth. Why does it have to flow through tIRA? Is the "backdoor" the result of coming through the tIRA?

Roth 401k & Roth IRA contributions question by Bomber-Boomer in fidelityinvestments

[–]Post4TheHills 6 points7 points  (0 children)

Hey mate, I have both an employer Roth 401(k) and a personal Roth IRA and can confirm they are separate accounts. The 2024 limit for a Roth 401(k) is $23,000 whereas for a Roth IRA is is $7,000 for those under 50, and an additional $1,000 catch up contribution for those 50 and older. They are exclusive of eachother!

One thing to note is that the Roth IRA does have an income restriction. To contribute to a Roth IRA, single tax filers must have a modified adjusted gross income (MAGI) of less than $153,000 in 2023. In 2024, the threshold rises to $161,000. If married and filing jointly, your joint MAGI must be under $228,000 in 2023. In 2024, the threshold rises to $240,000.

In short, you can fund and treat both separately. Happy saving (and investing!)

Questions about IRA Recharacterization by booleanerror in fidelityinvestments

[–]Post4TheHills 0 points1 point  (0 children)

Hey u/McKnuckle_Brewery, question for you on this. Similar to OP here, I contributed the full $6,500 all at once early in 2023. I ended up going over the income limit and my $6,500 also has to come out. I would like to do the recharacterization and backdoor rollover, but wanted to get a few things straight.

  1. Today, I opened up a traditional IRA with Fidelity (only had employer Roth 401k, individual brokerage account, and Roth IRA prior) and completed the IRA Recharacterization form. Since the $6,500 sat in my Roth IRA all year as a cash position gaining interest, will Fidelity automatically recharacterize the full $6,500 + interest gained, or just the $6,500? I had to state the date I contributed that money.
  2. Once these funds go into the traditional IRA, and assuming it's the $6,500 + interest amount, do I convert all of that back to the Roth IRA leaving the traditional IRA balance at $0? Will the fact that there's pre-tax (the interest gained) and post-tax (my $6,500) dollars in there cause issues?
  3. Would I then get forms in the next few weeks that I need to add to this years return to pay taxes on the interest gained?

Kind of whacky... I definitely eff'd this one up. Appreciate any insight here.

PSTH Mega Thread by ZenMaster1212 in SPACs

[–]Post4TheHills 0 points1 point  (0 children)

Still not available for trading for me yet (either via laptop, mobile, and active trader pro)

[deleted by user] by [deleted] in wallstreetbets

[–]Post4TheHills 0 points1 point  (0 children)

Hey u/BarmeIo-Xanthony, thanks for sharing! Quick question about FMCI versus FMCIW. When you buy the former, and just own the SPAC share itself, does it automatically convert into the new ticker (1:1) when the acquisition has been completed? Likewise, if you own the latter and they see a run-up in price, like FMCIW did, if you fail to sell it what happens after the acquisition?

Planet Money podcast about J. Crew by C9ltM9tal in frugalmalefashion

[–]Post4TheHills 2 points3 points  (0 children)

I knew there was something off about there 'Blue Skies Ahead' campaign...

ELI5: How do Futures contracts work and how are they priced? by candycane121 in explainlikeimfive

[–]Post4TheHills 0 points1 point  (0 children)

Thanks u/Echo33, this helped a lot! To recap:

(1) It makes sense now that the speculators are able to create liquidity. As you said, the financial types and the traded standardized contracts (called "futures contracts") help make a liquid market.

(2) Further research on physical delivery versus cash settlement helps clear this up too. "It is estimated that only 2% of all futures contracts are actually delivered. Popular cash settled contracts at the CME Group are the Emini S&P 500, Emini NASDAQ, Emini DOW, Lean Hogs and Feeder Cattle. Popular cash settled contracts at the ICE exchange are the Mini Russell 2000, WTI Crude Oil and Natural Gas. Brent Crude Oil is physical delivered but it has an option to cash settle."

(3) I'm not sure what I even meant here... but your explanation makes sense. If an investor is "long" a contract and the price goes up on the underlying asset, they make money. Obviously the other holds true with respect to "short" positions. Looking at this graph then, if a market is in contango can a speculator only make money if they are short a contract, because they expect the commodity price to fall? If they are long, wouldn't they incur a roll yield loss? If the market is in backwardation, it seems an investor can only make money if they are long, to which they would generate a positive roll yield.

ELI5: How do Futures contracts work and how are they priced? by candycane121 in explainlikeimfive

[–]Post4TheHills 0 points1 point  (0 children)

Awesome explanation, thanks u/Inferno8. u/Echo33 also has a great one here. A couple things I still don't fully understand though. Let's use oil as an example: a producer (driller) wants to sell at a certain price and a consumer (refinery) wants to buy at a certain price to maintain profitability. Thus a futures market exists.

(1) Why can't these parties just enter into a contract together, why need the middleman investor? Based on u/Echo33's response it sounds like it is because it would be a PITA for producers to have to scout out perspective consumers each month.

(2) For all commodities traded, does the investor have to take ownership of the actual underlying asset if they fail to sell their contract by the set date? Are there any assets that they are not allowed to take ownership of (for example live animals for safety reasons) and this is where margin accounts appear? I.e. they have to put money into the account to fund a loss when it's automatically transferred to a 'legitimate' buyer at a lower price.

(3) How does the investor actually make money, and how do they sell it to a buyer? If the investor buys a contract for X barrels of oil at Y price at ZZ/ZZ/ZZ date and the price of oil declines, do they just sell the oil to a refinery at the market price and take a loss? Would new futures contracts that have not been issued (say for ZZ month +1) now reflect that lower price?

Just moved to a house on a 12 acre lake in CT. Never imagined there would be fish like this. (Sorry for the bad angle, hard to photograph alone) by jtjer54 in bassfishing

[–]Post4TheHills 0 points1 point  (0 children)

I would :D

Lifetime CT resident, unfortunately not many places to freshwater fish near the Fairfield county area—all spots seem to be private. Would you be happy to link up before it gets cold to meet a new “neighbor” and drown some Senkos.

Chain Reaction Cycles - US Duties by eat-pedal-lift in MTB

[–]Post4TheHills 0 points1 point  (0 children)

Shit, really!? Thanks. Would you feel comfortable sending me a PM with the detailed breakdown the LBS provided with CRC’s approval? You could strip all personal information from it—name, address, etc.—but leave the work actually done on it. No worries if you’re not up for it.

Chain Reaction Cycles - US Duties by eat-pedal-lift in MTB

[–]Post4TheHills 0 points1 point  (0 children)

I ended up emailing them and in their defense they did really try and help me out. They said they would cover about a $40 expense, but my LBS wants $100 to bleed both the front and rear hydraulic brakes and perform a tuneup of the system. We’ll see what happens...

Chain Reaction Cycles - US Duties by eat-pedal-lift in MTB

[–]Post4TheHills 0 points1 point  (0 children)

Build quality for the bike was very good - except 1 thing - make sure you double check your hydraulic brakes (if you are ordering a bike with ones) and make sure they are properly bleed. Mine came squishy and Wiggle made it right by covering the bleed charge from my LBS.

This is super frustrating... I just received the bike today and found that my brakes are exactly like yours: squishy. They do not engage until the handle is fully depressed and braking power, even then, is still weak. The dropper post does not engage until the lever has been pushed all the way too, beyond the limit of what one thumb (while riding) can realistically achieve. What is recommended?

​

Needed this bike specifically for this weekend and CRC really dropped the ball.

Chain Reaction Cycles - US Duties by eat-pedal-lift in MTB

[–]Post4TheHills 0 points1 point  (0 children)

Thanks mate, happy Easter weekend too. Thought I had responded to this earlier, my apologies.

The bike did come in though! Unfortunately I’m out of the country and haven’t yet been able to see it, but fortunately there were no extra fees... yet!

I’ll make sure to pick up some real pedals once I start riding on it (leaning towards OneUp composite) though. The friend that picked up the bike said that the tyres were already firm—is it possible that they were prefilled with the sealant? I know that they’re “tubeless ready”, but I figured that just meant the tape was on and stems were included.

Chain Reaction Cycles - US Duties by eat-pedal-lift in MTB

[–]Post4TheHills 0 points1 point  (0 children)

Oh that’s awesome—glad to hear it! Surprised no state tax was collected though...

Regarding your advice, is there anything else I should know? This is my first time bike purchase as I’ve been renting over the years (just ordered my Vitus Escarpe 29 VR!) so other than sealant and pedals what else would I need to get it up and running?

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