As the Fall of 2023 continues and Halloween approaches, an October IRA deadline looms. IRA owners might discover an excess (or unwanted) IRA contribution for 2022, or might choose to change their mind (recharacterize) on the type of a 2022 IRA contribution. Traditional and Roth IRA contributions made for 2022 may be corrected (by withdrawal or a recharacterization) by October 16, 2023 without the IRS 6% excess contribution penalty.
Excess or Unwanted Contributions
2022 Traditional and Roth IRA contributions may be corrected by the October 16, 2023, deadline either because they are excess (ineligible) contributions or simply unwanted. For example, an individual may have an excess IRA contribution because they contributed to an IRA but had no compensation (earned income) on which to make a contribution. Alternatively, an individual may have a Traditional IRA contribution that they discover is not tax-deductible and does not want a nondeductible IRA contribution. In either case, the IRA owner may correct the contribution by withdrawing it along with the net income attributable (NIA) (i.e., investment gains (or losses)) to the contribution. The NIA is taxable for the year in which the contribution was made.
Recharacterizations allow an IRA owner to change their mind on certain IRA contributions and treat them as if they were made to a different type of IRA. Specifically, a regular contribution made to one type of IRA (Traditional or Roth) may be recharacterized to the other type of IRA (Roth or Traditional). The deadline to recharacterize a 2022 Traditional or Roth IRA contribution is also October 16, 2023. The direct movement of a recharacterized IRA contribution to the receiving IRA also must include the NIA and is reported to the IRS but is nontaxable.