Re-characterized P/Y Contribution & Roth Conversion
Looking to confirm my understanding that re-characterization of a prior year Traditional IRA contribution (non-deductible) plus associated gains to a Roth IRA contribution has no impact on the ability to subsequently do a Roth Conversion?
More specifically, if a taxpayer re-characterized a 2009 Traditional IRA contribution (contributed early 2009) plus associated gains to a Roth IRA contribution by the 2009 tax return due date (re-characterized early 2010) & then subsequently did a Roth Conversion of remaining, but separate, Traditional IRA fund balance from the same Traditional IRA account at the end the 2010 calendar year, that this is not a problem?
I have found no guidance, nor opinion of knowledgeable advisors that I have discussed with, indicating that the re-characterization of the 2009 Traditional IRA contribution plus associated gains would have any impact on the ability of the taxpayer to do the subsequent Roth Conversion of the remaining funds from the same Traditional IRA account.
If the re-characterized 2009 contribution plus associated gains causes the taxpayer to be ineligible for the subsequent 2010 tax year Roth Conversion, then would the taxpayer have until the extended 2010 tax return deadline to re-characterize (unconvert) the Roth Conversion, assuming 2010 tax return was extended?
Input is much appreciated!
Permalink Submitted by Alan Spross on Wed, 2011-08-17 21:00
This is not a problem, but completion of the conversion 8606 can be tricky if there were other non deductible contributions done prior to 2009. Part I of the form needs to have the correct amount on each line to correctly calculate the taxable portion of the 2010 conversion whether the 2010 conversion is taxable in 2010 or if it is split between 2011 and 2012.
Of course, there should be no 2009 8606 reporting a non deductible TIRA contribution since that contribution was changed to a Roth contribution.