Recharacterizing a decedent’s Roth IRA
Assume as follows: An IRA holder elected to convert a portion of his Tradtional IRA to a Roth IRA on February 1, 2010
Assume the value of the account was $500,000. on that date
Assume the Roth IRA holder died on January 2, 2011 and his Roth IRA was worth $100,000 on that date
Assume his wife or child was the primary beneficiary as per the IRA beneficiary form
Assume his wife or child was the executor
Question: Since it would make little economic sense to not recharacterize the above Roth IRA, how would this be accomplished at Morgan Stanley, Fidelity, etc.? Must there be some document on file with the respective brokers that would allow for recharacterizations? It is my understanding that a “power of attorney form” becomes invalid upon the death of the person.
If unable to recharacterize as per the fact pattern above, the executor might be considered to be acting imprudently.
How should this be handled?
Permalink Submitted by Alan Spross on Wed, 2011-06-08 18:01
Recharacterizing a regular or conversion contribution of a decedent is authorized by the following IRS Reg, Q&A 6, answer c):
http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_…
The custodian should require documentation establishing that the person requesting the recharacterization has the authority, ie is the executor of the estate etc. Custodians don’t like to be embroiled in disputes, so this provision can become contentious if the beneficairies on the respective Roth and TIRA accounts differ. The fewer parties involved the easier it should go, ie same beneficiaries, beneficiary and executor the same etc.. If not the custodian might require a bunch of signed agreements from all parties of interest.
Permalink Submitted by Eric Woodfill on Wed, 2011-06-08 20:38
Is there a time line that has to be followed if Recharacterization of a decedent’s Roth IRA is to be achieved??
Permalink Submitted by Alan Spross on Wed, 2011-06-08 21:04
Yes, but the same extended due date that would have applied to the decedent. For example, a 2010 conversion would have to be recharacterized no later than 10/17/2011. Meeting that date might be somewhat more challenging since the 2010 return or a timely extension is also required by 4/18/2011 in order to extend the due date to 10/17.