Deadline for 2009 Roth Conversion
Is the deadline for 2009 conversions Dec 31 or April 15? Irrespective, I assume one has until Oct 15, 2010 to recharacterize?
Is the deadline for 2009 conversions Dec 31 or April 15? Irrespective, I assume one has until Oct 15, 2010 to recharacterize?
Permalink Submitted by Alan Spross on Tue, 2009-09-22 21:16
The deadline for the DISTRIBUTION that becomes the conversion is 12/31/2009. If done by indirect rollover instead of direct transfer, you have another 60 days to fund the Roth IRA. But the distribution must be done by 12/31. 4/15 is immaterial to this issue.
The recharacterization deadline is indeed 10/15, but only if you either file your return on time or extend it on time. If you do neither, then the recharacterization deadline is 4/15 of the year following the conversion distribution.
If you are thinking of waiting for the last minute to convert, hoping to get the best guess on how much you should convert, the alternative is simply to do your conversion much earlier and then recharacterize part or all of it after your tax bill is otherwise completely final.
Permalink Submitted by Elizabeth Bivings on Wed, 2009-09-23 15:25
Thanks for the response but I am not sure I understand. The person considering the conversion is not 59 1/2 and therefore does not want to take any kind of distribution of his individual IRA, rather he just wants to convert (ie. via direct transfer) a set amount from his individual IRA to a Roth. But perhaps I’m confusing what you mean by “the distribution that becomes the conversion”. Can you clarify. Thanks much.
Permalink Submitted by mk foss on Wed, 2009-09-23 16:29
The conversion is a taxable event. The “distribution that becomes the conversion” is the amount withdrawn from the IRA and transferred to the Roth. There is no 10% penalty for someone under 59.5 converting to Roth as long as they keep the funds in the Roth for 5 years.
Permalink Submitted by Alan Spross on Wed, 2009-09-23 19:58
In summary, if the conversion is done by direct transfer, the deadline is 12/31. While direct TT transfer is the most common and best method of doing a Roth conversion, it can also be done by indirect 60 day rollover. In that case, the distribution must be processed by 12/31 and the Roth must be funded within 60 days of the distribution. This conversion would be taxable in the year of distribution and reported on Form 8606.
HOWEVER, since the Roth itself is not funded until the following year, the 5 year holding requirement begins in the year of funding, NOT the year of distribution. Taxpayer ends up with an additional year to hold the conversion in order to meet the 5 year conversion holding requirement.
Permalink Submitted by John Panaro on Thu, 2009-10-08 16:45
Can the account holder deposit the rollover (within the 60 days) to another traditional IRA rather than a Roth IRA if, after 12/31, it becomes apparent that he/she exceeds the conversion income threshold?
Permalink Submitted by Alan Spross on Thu, 2009-10-08 20:39
Sure, if they are eligible for a rollover from the original account, doing a TIRA to TIRA rollover would save some work, if the account has an allowed rollover available.
The one rollover limit does not apply to Roth conversions, but if you change your mind and want to keep the funds in a TIRA, you cannot have already used up your one rollover per 12 month period from the original TIRA account. That would essentially force you into a Roth conversion and recharacterization to enable the funds to remain in an IRA. This is a work around for people who took money out of a TIRA and then realize that they are not eligible for another rollover. The work around is to do a Roth conversion that they intend to be temporary since they intend to recharacterize it from the beginning.