Earlier this year, I contributed about $1500 to my IRA before I realized my salary plus bonuses will likely put this year’s gross income over $144k.
Should I withdraw the contributions? Should I just expect to be penalized when I file taxes in the spring? How much of a hit should I brace for?
Not a financial advisor, but I did the same thing. My financial advisor told me: call vanguard, have them re-characterize it as a traditional contribution, then do the backdoor conversion. Lots of tiny silly steps, but it works.
Edit: traditional contribution
Look at the common mistakes section here
My understanding is that If you want to ultimately still have money going to the Roth, you need to do a recharacterization of the contributions and any attributable earnings from said contributions to a traditional Ira(no income limit, and this makes it as if you contributed to traditional from the start). Then you can convert from traditional back to Roth (Backdoor Roth). If you had any earnings before you perform the Backdoor Roth you will need to pay taxes on it. If you had a loss you would carry the basis into future year tax docs.
I am not a tax expert but this is my understanding.
Call your IRA and ask for it to be characterized. It’s one sheet of paper and takes little time.
Are we talking about taxable income or just gross income? I mean you need to factor in potential deductions as well that might put your under. In general if you are thinking you might tow the line for taxable between direct Roth IRA contributions or backdoor Roth IRA contributions, it is always safer to do the backdoor Roth IRA contributions.
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