Once per year rule
My question is do I undertsand correctly that the rule applies [b]only to rollovers (not direct trustee-to-trustee transfers) only to rollovers from one TIRA to another TIRA (not qualified plans or Roth IRAs)[/b]. If correct, then I think I’m ok but please review the transfers below. The mathmatical differences are P&L.
In May 09 I took an in-servce distribution of pre- and post-tax money from my 401k. The pre-tax money $302 went to a TIRA F1 and the post-tax money $113 to Roth F1. In Aug 09 I transferred pre-tax IRA dollars in TIRA S1 $271 to TIRA F1 (the combined balance representing ALL pre-tax ownership) and in Oct 09 transferred the combined amount $570 back to the 401k.
Realizing I did not meet the 2009 income limit in Nov 09 I re-characterized the post-tax money $112 by transfer from Roth F1 to TIRA F1. In Jan 10 I converted the post-tax money $112 by transfer from TIRA F1 to Roth F2, then transferred the same money from Roth F2 to Roth S1.
Thanks for you input. Kyle
…………….401k F….TIRA F1…..Roth F1….Roth F2…..TIRA S1….Roth S1….TIRA S2..notes
Beg Bal……..775…………………………………………..276……….9…………27
May 09:……(415)…….302 pre…..113 post……………………………………………….in-service distribution
Aug 09:………………..271………………………………(271)…………………………..trustee to trustee
Oct 09:…….570……..(570)……………………………………………………………….all pre-tax $ to 401k
Nov 09:………………..112……..(112)……………………………….27……….(27)…..recharacterize
Jan 10:……………….(112)……………………112………………………………………convert
Jan 10:…………………………………………(112)…………………112……………….trustee to trustee
……………._______________________________________________________________
End Bal:…….930……….0………….0…………..0…………0………148…………0
Permalink Submitted by Alan Spross on Thu, 2010-02-11 19:46
Kyle,
I don’t see any problem here since there are no indirect rollovers FROM an IRA account, and direct TT transfers are unlimited in number. Recharacterizations by definition must be done by direct transfer, and Roth conversions also do not count no matter how they are done.
Since your recharacterized conversion to a TIRA was originally post tax, you need to file an 8606 to report the basis in your TIRA for 2010, which is the year of your Roth reconversion, and you need to be credited with the basis for that conversion. Your reconversion is OK because you waited until the following year and at least 30 days from the recharacterization date.
There could still be a troubling issue however with avoiding pro rating of basis in the original rollovers. I assume your 1099R forms support this, but there has been an issue of debate for several months now due to lack of clear IRS guidance on the topic. There is also a new Morningstar article today about this issue. Plan administrators are issuing 1099R forms assuming the after tax contributions can be segmented out when this is doubtful under the IRS rulings that currently exist, incomplete as they are. While you did recharacterize that conversion, the accounts holding the all the post tax money were deemed to be limited first to the Roth and now to the recharacterized TIRA, and that characterization of the funds could be challenged if and when the IRS gets their act together. But there is really nothing you can do about it now other than to hope your post tax funds are all in that TIRA account. By law they cannot have been transferred back to the QRP because IRA after tax funds cannot be transferred there and QRPS cannot accept them. The longer this goes without resolution, the better off you probably are because any other resolution would be almost prohibitive to implement.
This is an excellent case study of how a successsion of transfers can be almost impossible to unwind if the original premise is challenged. In your case that premise would be that tandem direct rollovers can be done and the pro rate rules avoided, while existing tax law is not reflected in that assumption. If you want a link to the current article let me know. Based on the transaction you have already done, you have probably heard about this issue before.