I made a withdrawal from my Roth IRA in early 2018, and within 60 days, I contributed part of that amount back into the Roth IRA, and I selected in the online form at the time for it to be a "Rollover contribution".
However, now I changed my mind and want to retroactively re-designate it as a Regular contribution to Roth IRA for the year 2017. The contribution was in early 2018, before April 15, and the amount of the contribution was less than $5500, and I did not make any IRA contributions (Traditional or Roth) for 2017, and my MAGI for 2017 is under the phaseout for Roth IRA contributions, so it could have been designated as a direct Roth IRA contribution for 2017 at the time, had I chosen to do so.
(If you are wondering why I want to do this, it's because you can only make one Rollover contribution in a 12-month period. I made another withdrawal from my Roth IRA later in 2018 by mistake, and I want to put it back now as a Rollover contribution, but I can't do that if I did a Rollover in the last 12 months. I also want to separately make a $5500 Roth IRA contribution for 2018, so I don't want to waste my 2018 contribution limit for this contribution; that's why I want to put it back as a Rollover.)
I haven't filed 2018 taxes yet, so I have not reported the Rollover contribution to the IRS. The only place designating the contribution as a Rollover is in the online form with my IRA custodian when I contributed it. My IRA custodian says that they can "update" it to a regular contribution for 2017 if I just sign a deposit slip.
But then I saw in the regulations, 26 CFR 1.402(c)-2.A-13, where it seems to say that the designation of a contribution as a rollover is "irrevocable" (though I am not sure whether this section only applies to rollovers from 401(k) to IRA (since it mentions "employee"), or whether it also covers IRA-to-IRA rollovers as well):
Q-13: Must an employee's (or spousal distributee's) election to treat a contribution of an eligible rollover distribution to an individual retirement plan as a rollover contribution be irrevocable?
A-13: (a) In general. Yes. In order for a contribution of an eligible rollover distribution to an individual retirement plan to constitute a rollover and, thus, to qualify for current exclusion from gross income, a distributee must elect, at the time the contribution is made, to treat the contribution as a rollover contribution. An election is made by designating to the trustee, issuer, or custodian of the eligible retirement plan that the contribution is a rollover contribution. This election is irrevocable. Once any portion of an eligible rollover distribution has been contributed to an individual retirement plan and designated as a rollover distribution, taxation of the withdrawal of the contribution from the individual retirement plan is determined under section 408(d) rather than under section 402 or 403. Therefore, the eligible rollover distribution is not eligible for capital gains treatment, five-year or ten-year averaging, or the exclusion from gross income for net unrealized appreciation on employer stock.
So if the IRA custodian lets me "update" my IRA-to-IRA rollover to a non-rollover contribution, is that illegal? Would that cause problems for me? If I then do another "Rollover" (under the assumption that there is no longer a rollover within 12 months), and the IRS somehow decides that my first contribution is still a Rollover, could it charge me a penalty for excess contribution for the second contribution every year from now on?
However, now I changed my mind and want to retroactively re-designate it as a Regular contribution to Roth IRA for the year 2017. The contribution was in early 2018, before April 15, and the amount of the contribution was less than $5500, and I did not make any IRA contributions (Traditional or Roth) for 2017, and my MAGI for 2017 is under the phaseout for Roth IRA contributions, so it could have been designated as a direct Roth IRA contribution for 2017 at the time, had I chosen to do so.
(If you are wondering why I want to do this, it's because you can only make one Rollover contribution in a 12-month period. I made another withdrawal from my Roth IRA later in 2018 by mistake, and I want to put it back now as a Rollover contribution, but I can't do that if I did a Rollover in the last 12 months. I also want to separately make a $5500 Roth IRA contribution for 2018, so I don't want to waste my 2018 contribution limit for this contribution; that's why I want to put it back as a Rollover.)
I haven't filed 2018 taxes yet, so I have not reported the Rollover contribution to the IRS. The only place designating the contribution as a Rollover is in the online form with my IRA custodian when I contributed it. My IRA custodian says that they can "update" it to a regular contribution for 2017 if I just sign a deposit slip.
But then I saw in the regulations, 26 CFR 1.402(c)-2.A-13, where it seems to say that the designation of a contribution as a rollover is "irrevocable" (though I am not sure whether this section only applies to rollovers from 401(k) to IRA (since it mentions "employee"), or whether it also covers IRA-to-IRA rollovers as well):
Quote:
Q-13: Must an employee's (or spousal distributee's) election to treat a contribution of an eligible rollover distribution to an individual retirement plan as a rollover contribution be irrevocable?
A-13: (a) In general. Yes. In order for a contribution of an eligible rollover distribution to an individual retirement plan to constitute a rollover and, thus, to qualify for current exclusion from gross income, a distributee must elect, at the time the contribution is made, to treat the contribution as a rollover contribution. An election is made by designating to the trustee, issuer, or custodian of the eligible retirement plan that the contribution is a rollover contribution. This election is irrevocable. Once any portion of an eligible rollover distribution has been contributed to an individual retirement plan and designated as a rollover distribution, taxation of the withdrawal of the contribution from the individual retirement plan is determined under section 408(d) rather than under section 402 or 403. Therefore, the eligible rollover distribution is not eligible for capital gains treatment, five-year or ten-year averaging, or the exclusion from gross income for net unrealized appreciation on employer stock.
Federal Taxes: Changing a Rollover Contribution to Roth IRA to a Direct Contribution to Roth IRA
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