Recharacterize and then reconvert
As I understand it, if you recharacterize a conversin back to an IRA you can not reconvert the same assets until the next year or for 30 days whichever comes later. Short of setting up multiple IRAs and completely segregating the transactions, are there any rules about determining what constitutes the same assets. Let’s assume 500K IRA with 100K converted and then recharacterized back. If you then convert another 100k does the IRS automatically give you the benefit of the doubt since you have another 400K in the account. If not, would converting an investment not involved in the original conversion satisifies the rule since it clearly is not the same asset?.
Thanks in advance.
Glenn
Permalink Submitted by Alan Spross on Tue, 2008-04-08 01:05
There is no reporting done on the identification of assets that move between IRAs, only the amounts. For that reason, in order to have the various conversions not counted as pre mature reconversions, the safest approach is to:
1) Convert different amounts, eg 100,000 for one conversion, 95,000 for another, 105,000 for a third etc.
2) Recharacterize each conversion back to a different TIRA account so that the reconversion of that same amount can be shown not to have occurred. I understand that you (or your IRA custodian) may wish to avoid this administrative hassle, but it is the best way to enable you to respond to any IRS inquiry you may get. I am not aware of any specific IRS advice outlining how they assess these matters.
#2 above is the most viable way to show that no disallowed reconversion took place, although the first also helps make your explanatory statements easier to follow and less likely to be considered a violation.
Permalink Submitted by Glenn Wager on Tue, 2008-04-08 17:16
Alan – Thank you for your response. I agree that the cleanest way to do it is to use a seperate IRA, but in this case it is not an option. Client unexpectedly went over the 100k AGI limit and wanted it reversed before leaving town and quickest way to do it was back into exisitng IRA. I do not expect the 100K to be an issue again, so would like to do a new conversion from his IRA in 2008. However, I do not want to violate the rule about reconverting the same assets. Since I know the exact assets that were recharacterized, it seems logical that by converting different assets you have avoided the problem. Of course, no one has ever accused the government or IRS of being logical, so I was looking for some additional insight on the issue.
Any further thoughts on the strategy would be appreciated.