Can you rechar Trad IRA contribution into SIMPLE IRA?(Trad contrib made in 2003; rechar to take place b4 yr end....

[Guest amfam2]

I think this can be done - please advise if you think this is incorrect:

Business owner is incorporated and pays himself a paycheck. He makes a $3,000 Trad IRA contribution for tax year 2003. During 2003 he establishes SIMPLE IRA for his business.

He would like to recharacterize his 2003 Trad IRA contribution into SIMPLE IRA before the end of the tax year.

I think he can do it - the key to the correction would be that he runs the correction through his payroll records. This would involve including the $3,000 in his payroll income, paying FICA/FUTA and proper inclusion on box 12 of the W-2.

On the financial institution's side (we hold both accounts), the Trad IRA would issue a 1099R showing a current year recharacterization, and the SIMPLE IRA 5498 would report the receipt of the rechar contribution.

Does anyone have any information which would indicate that this is not allowable under the tax code?

[Appleby]

Creative amfam2; but not possible. The only recharacterization that can occur in a SIMPLE is a recharacterization of assets that were converted from a SIMPLE IRA to a Roth IRA.

It appears that your client no longer wants this IRA contribution. If this is so, then he may remove the amount as a return of excess contribution …