Roth IRA and IRA
I have a friend who converted WAMU to Roth from IRA last year. It crashed and he sold while still in the Roth. Therefore he owes for taxes from the IRA to roth and then lost all of the money in WAMU. Can the loss in the Roth be deductible? What can be done.
Permalink Submitted by Anonymous (not verified) on Wed, 2009-02-18 18:36
He should recharacterize the conversion right away. He must contact the custodian of the Roth IRA and tell them he wants to do a full recharacterization of his conversion. If he did more than one conversion, he needs to provide a date and amount of the conversion that applies. This will eliminate his tax bill on the conversion. He will not report the conversion on his tax form, but should provide an explanatory statement stating the dates and amounts of the conversions and recharacterization so the IRS will know why he did not report the conversion.
If he has other Roth accounts or still has a balance in the current Roth, he could also consider fully distributing the Roth AFTER the recharacterization is done. That may provide him with a misc itemized deduction subject to 2% of AGI limit IF he can itemize. This is something he can consider later for 2009 and should check it out carefully before closing the account totally. But right now, the recharacterization and elimination of his tax bill is most critical.
Permalink Submitted by Anonymous (not verified) on Thu, 2009-02-19 00:29
Alan,
Thank you very much. I was hoping my understanding was correct.
Gary Jang