Roth recharacterization
Hello,
I converted my TIRA for the amount of $140,000 to roth IRA on Dec 30 of 2010.
the IRA asset is commingling with roth IRA Asset.
The roth ira account had $30,000 before IRA conversion money was added. The total in roth ira after conversion was $170,000.
As of Sept 30 of 2011, the Roth ira market value has dropped to $150,000. The loss was $20,000.
I would like to undo my 2010 ira conversion since the value has dropped more than 11%.
I just need help with the mechanic of undoing my 2010 ira conversion.
Assuming I haven’t reported 2010 conversion amount on my 1040.
can anyone help? Thank you in advance.
HH
Permalink Submitted by mk foss on Fri, 2011-10-07 16:51
The regulations give you a formula for determing the “earnings” – negative in your case – on the conversion. Some custodians prefer to do the calculation themselves. Have you checked with the custodian? Basically you divide the conversion amount by the total after the conversion and multiply by the $20,000 change in value to see what the negative earnings are. You recharacterize the conversion less the negative earnings.
Permalink Submitted by Sandra Hoa Truong on Sat, 2011-10-08 18:22
I appreciated your info.
My custodian does not provide this service. I just want to reconfirm on your comments.
My conversion 140,000 divided by 150,000 0= 0.933
.933 X 20,000 = $18.666.66 (Negative)
140,000 – 18,666.66 = 121,333.34 . Is this the amount that i need to recharacterize/reconvert.
Is that the right way to do it? Please advice.
Thanks!
HH
Permalink Submitted by Alan Spross on Sun, 2011-10-09 00:01
No.
The adjusted closing value is 150,000 and the opening value is 170,000.
150k – 170k = -20k
-20/170 = -.118
-.118 X 140k = -16,520
140,000 -16,520 = 123,480.
123,480 is the amount to be transferred back to the TIRA. This calculation follows the Pub 590 worksheets.
A quicker way is to divide the closing balance by the opening balance. 150/170 = .882
.882 X 140k converted equals 123,480 same result
Problem is that the market value probably changed since 9/30 unless the account is all cash. If the custodian will not do the calculation, then they must use your value which is easily established since it is a quarter end statement figure. Rush this figure to them ASAP since there is only 6 business days left to complete the recharacterization.