reconverting previously recharacterized conversion asset
Hello
In 2011 , a person converts all assets from a specific IRA account to a newly created Roth for 2011 tax year . All the assets are shortly recharacterized back ( gain or loss is of no consideration ) . Some of the wording I ‘ve read
on when this specific money can be reconverted back to a Roth is confusing .
a) the beginning of the tax year following the year of the original conversion
b) 30 days from the date of the recharacterization
WHICH EVER IS LATER of 2 above .
Questions
1. Does this mean that if recharacterization has been done this year for the 2011 original conversion , I must wait until Jan 1 to convert back ?
2. If so , if I convert back on Jan 1 , 2012 can this be applied to 2011 conversion ? I guess I ‘m confused because I thought deadline for 2011 conversions is Dec 31, 2011 and by doing above , I would lose out on 2011 applied conversion .
3. Just to be safe and have no confusion could I just convert NOW my desired 2011 assets from another , totally separate IRA ( has a different acc # from above ) and not be concerned with
whatever the rules are for ” reconverting previously recharacterized conversion assets ” ? .
newt
Permalink Submitted by Alan Spross on Fri, 2011-09-09 03:24
Hi Newt,
1) Yes, you must wait until next year if you are converting the same assets. If you are converting other dollars from your TIRA that were in the account and not part of the recharacterized amount, then there is no waiting period. In order to document this with the IRS in the unlikely chance they ask, do the second conversion before recharacterizing the first. That would show that the second conversion obviously was done with different assets.
2) If this was the only IRA asset, and therefore you had to wait until 2012 or 30 days if later, you would then have a 2012 conversion, not a 2011 conversion. You would end up with no 2011 conversion.
3) Yes, you could. However, you might have to show the IRS that your recharacterization did NOT go into this particular IRA, but into the other TIRA.
Note that the IRS is not actively hunting for disallowed reconversions, so they are unlikely to ask. Still, you should do the reconversion in a manner that you could show the IRS that you did not reconvert the same assets, but converted different assets, ie you did not even do a reconversion, instead you did a separate conversion of different assets.
These reconversion rules are basically written for people who converted their only IRA in total, recharacterize it and then wish to reconvert within the limited time period. It is not meant to limit people who do several conversions of totally different assets.
Permalink Submitted by Newt Pearson on Fri, 2011-09-09 04:08
Hey Alan
Haven ‘t been on board in a while except for your answer a few weeks ago . You are so kind to provide your expertise in an area that would get us all in a tangled mess , lots of headaches and / or cost us heaps with a lawyer . Most financial advisers don ‘t know this stuff near as well as you either . Come to think of it , I don’t believe anyone does … not Slot and certainly not any IRS folks.
I hope this forum is fully aware of the emotional relief and thousands of dollars you save us .
Hope all is well and prosperous with you and your love ones .
Thank You seems too small .
Newt Pearson
Permalink Submitted by Douglas Broome on Tue, 2011-09-13 11:24
With the recent stock market dive I am thinking to recharacterizing my RIRA which I converted from a TIRA in 2010. October 17, 2011, is the deadline for recharacterization, I understand. I did not pay any tax in 2010 on this because I took the option of splitting the tax liability between 2011 and 2012. I am interpreting this thread to mean that I must wait until 2012 or 30 days, whichever is later, to move these funds back into a RIRA from the TIRA that I would create with the recharacterization. Is this correct? My basic question: How long must I wait to be able to convert these funds into a new RIRA following recharacterization?
My wife has the same question: Same issues except that the facts are slightly different. She paid taxes in 2010 on the amount she converted from her TIRA into RIRA in 2010. She elected not to split the 2010 tax liability between 2011 and 2012.
Thank you. Douglas
Permalink Submitted by Alan Spross on Tue, 2011-09-13 17:58
Douglas,
Since both of your conversions were 2010 conversions, you can reconvert in 2011 after waiting 30 days from the date of the recharacterization transfer back to the TIRA. You do not have to wait until 2012 because the conversions were 2010 conversions. If they had been 2011 conversions, then you would have to wait until 2012 or 30 days, whichever is longer.
The fact that you opted to pay the taxes in 2011 and 2012 does not affect the above, since your conversion is still considered to be a 2010 conversion regardless of when the taxes are due.
Note: There could be a considerable rush to recharacterize these, so with a weekend just before the 17th of October, I suggest getting the order in by the 6th of 7th. Custodians vary in there processing times so you might also want to check with the custodian how much lead time they need. No sense taking the chance that it does not get processed in time. The actual amended 2010 return can wait, but suggest getting it done before the start of next years tax season.