How long does it take for Fidelity to execute my recharacterization request?
Here’s a summary of the main problem and solutions discussed in the post:
- Main Problem: The user mistakenly contributed to a 2024 Roth IRA, unaware that their joint income with their spouse would exceed the contribution limit, and is concerned about the recharacterization process and potential value decrease of the contribution.
- Solution 1: The user can recharacterize their Roth IRA contributions, which may take 5-7 business days to process.
- Solution 2: After the recharacterization, the user can proceed with a backdoor Roth conversion, which involves making a non-deductible Traditional IRA contribution followed by converting those funds to their Roth IRA.
- Solution 3: The user will receive a 1099-R Form from Fidelity for the conversion, indicating the funds leaving the Traditional IRA, and a 5498 Form for the funds going into the Roth IRA.
Here’s the full thread
I messed up and contributed to my 2024 Roth IRA, forgetting that I will be filing jointly with my spouse next year and together we will be over the joint income limit. I read that I could recharacterize my Roth IRA contributions and then do a backdoor Roth. I did this via Fidelity’s website last Thursday but nothing has changed. How long does it usually take? I’m concerned that the value of my 2024 contribution will drop below $7k when it happens and possibly complicate matters.
Thanks for reaching out, @thetinytatertot.
Recharacterization requests can take up to 5-7 business days. Once the assets have been removed from the Roth IRA, you can move forward with the Roth Conversion (often referred to as a backdoor Roth IRA).
Since you mentioned a Roth Conversion, I want to review that process as well. A backdoor Roth conversion typically refers to making a non-deductible Traditional IRA contribution and then converting those funds to your Roth IRA. This strategy is often utilized by individuals who cannot make a direct Roth IRA contribution due to income.
Due to the pro-rata rule, tax-free conversions can only occur if you have $0 pretax money in your IRAs. If you hold pretax/deductible assets in any pretax IRA (such as a Traditional, SEP, or SIMPLE IRA), part of the Roth conversion will be subject to taxes. The portion of the conversion that would be considered non-taxable is determined by using this formula:
(Total Non-deductible Contributions / Total non-Roth IRA Balances)
Non-deductible contributions are reported on Form 8606, which is the taxpayer’s responsibility to notate and report when necessary. Fidelity does not provide this form for clients. It’s also important to remember that Roth conversions are always taxable in the calendar year in which they occur.
The link I’ve shared below will walk you through the conversion steps if needed.
Roth Conversion Checklist: https://www.fidelity.com/retirement-ira/roth-conversion-checklists
Please let us know if any other questions come up during this process. We’re happy to help. 🟢
@FidelityLinsey Thanks for the additional explanations! I’m still wrapping my head around the tax reporting implications. I have to marinate on this some more, but from what I gather about my current case, the conversion back to Roth from recharacterized traditional IRA should be mostly straight-forward… I think. The conversion included the original $7k + small earnings, all of which is taxable.
Will I get a 1099-R from Fidelity for the conversion?
For the Roth conversion, you should expect to receive a 1099-R Form that shows the funds leaving your Traditional IRA, and a 5498 Form showing the funds going into your Roth IRA.
Got it, thank you!
You’re welcome! Have a great week. 🟢