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I have always contributed the max to my Roth IRA on the first opportunity in the new year, as I did on January 2, 2020.

I ended up getting a major raise and bonus in mid-2020 that pushed my income way above the limit for contributing in this way, and I don't expect it to come down for a while.

How can I remedy this?

I believe I have until April 14 2021 to withdraw my contribution from 2020. Then I believe I can, instead, put it into a Traditional IRA and execute the backdoor conversion.

Is that about right? Surely my Roth IRA had earnings in 2020 so how do I deal with those?

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Yes, you can withdraw (undo) the Roth contribution including earnings, and instead contribute to trad -- but only the standard amount, $6k, without any added earnings, and the earnings will be reportable as income for 2020. The custodian (i.e. bank etc. where you have the IRA account) is required to handle this; make sure to tell them, or select on the website or app, this is a 'correction of excess contribution' or words to that effect, since this is a special case and you need them to report it on 1099-R as such; similarly when you contribute to the trad make sure it is designated for 2020 (this is much more common and routine). Technically you have until Oct. 15, the extended deadline, to do the Roth withdrawal but only until April 15 to do the trad contribution; in both cases I would not wait to the last minute because if there is any delay or glitch you're screwed.

(Note if you have any existing trad IRA, doing the backdoor is less effective; you have to pay tax on part of the conversion. That is regardless of the accounts used; putting the backdoor in one account does NOT isolate it from other trad account(s).)

However, a better solution is to recharacterize the Roth contribution to trad. If you already have a trad IRA, you can do this by transferring the $6k-plus-earnings; contact the custodian (both if different). If you have only the 2020 money in that specific Roth account you can simply redesignate the account as trad, but from your description this doesn't sound like the case. (If you do/did, don't call this a conversion. In the IRA context a conversion is a very specific thing and NOT what you want at this step.) Otherwise contact the Roth account custodian about creating a trad account and then transferring to it as above.

The links to the website are to the 2019 version of pub 590A because 2020 isn't out yet, but these provisions don't change. (There was a change in 2018 due to TCJA eliminating the former ability to recharacterize after conversion, which you see described in this pub as 'new'.) You can also download this in PDF; see the links to the parent pages at the top of this page.

Congratulations on making too much money :-)

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  • To add, after he recharacterizes the Roth IRA contribution into a Traditional IRA contribution, if he has no pre-tax money in Traditional IRAs and will not put pre-tax money in Traditional IRA in 2021, he can then convert all of the money (that is now in) Traditional IRA to Roth IRA. This would effectively make the whole process a backdoor Roth IRA contribution. He would only have to pay tax on the earnings between the contribution and conversion.
    – user102008
    Jan 9 at 0:20
  • @user102008: doing the backdoor conversion was already in the Q. I did warn about having pre-existing trad; in that case you are taxed on the ratio of existing contributions if pre-tax and all earnings compared to your new (2020) post-tax contribution. Jan 9 at 7:22

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