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I made 3 non-deductible contributions to my traditional IRA account in 2019, 2020, and 2021. Instead, I should have contributed the money to Roth IRA. What would be the best way to fix this?

Here is a list of all my contributions.

year contribution
2018 5500 deductible
2019 6000 non-deductible
2020 6000 non-deductible
2021 6000 non-deductible

I'm reading Publication 590-A, and it looks like I can recharacterize my 2020 and 2021 contributions. In this case, will I have to pay taxes on the gains attributable to the contributions?

For what it's worth, I also have 401k and 403b accounts.

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  • "non-deductible contributions to my traditional IRA" - Could you explain how you did this? Do you mean that you made a traditional IRA contribution, but did not claim it as a deduction on your taxes? – Orange Coast- reinstate Monica May 17 at 16:57
  • I made contributions to my tIRA, but could not deduct them because my income is above the limit. – Panic May 17 at 19:47
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No taxes are paid on a recharacterization. A recharacterization treats the contribution as if it were made to the second type of IRA from the beginning. Any earnings attributed to the recharacterized contribution (calculated according to some worksheets) are moved to the second IRA, and are treated as if they were earnings that were made in the second type of IRA (in this case, Roth IRA). I am assuming that you have verified that you are eligible to contribute $6000 to Roth IRA for 2020 and 2021.

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  • My MAGI is above the limit, so I am not eligible to contribute to Roth IRA. Does this mean that my only options are to withdraw or to convert the contributions? My understanding is that I will have to pay taxes on the gains in this case. – Panic May 17 at 19:50
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    @Panic: Recharacterizing to Roth IRA contribution means it treats you as having made a Roth IRA contribution to start with, so obviously you can't do that if you are not eligible to contribute anything to Roth IRA. (In fact, people who contributed to Roth IRA and find that they were ineligible to contribute recharacterize them to Traditional IRA contributions to escape the penalty.) – user102008 May 17 at 21:21
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    @Panic: You can convert amounts from Traditional IRA to Roth IRA, but any withdrawals or conversions from Traditional IRA will need to come out of both the pre-tax and after-tax parts (the deducted contributions and earnings are both part of the pre-tax part) in the same proportion as in your Traditional IRAs overall, according to the pro-rata rule, and you will need to pay tax on the part of the conversion that came from pre-tax funds. Withdrawing is probably a bad idea because you not only have to pay tax on the pre-tax part, but also a penalty. – user102008 May 17 at 21:24
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    @Panic: Making a non-deductible Traditional IRA contribution and then converting it to Roth IRA is the so-called "backdoor Roth IRA contribution", but the usual prerequisite is that you have to have no pre-tax money in Traditional IRA. Since you have pre-tax money in Traditional IRA, there is no way you can convert the after-tax part to Roth IRA without also touching the pre-tax part (unless your 401k plan allows you to rollover pre-tax funds from Traditional IRA into it). – user102008 May 17 at 21:27
  • My 401k plan allows that, thank you! – Panic May 18 at 18:48
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You have reinvented the Backdoor Roth IRA by mistake :)

... roll over existing traditional IRA money into a Roth—as much as you want at one time, even if it's more than the annual contribution limit ...

https://www.investopedia.com/terms/b/backdoor-roth-ira.asp

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