conversion procedure
In 2010 I converted my TIRA to a Roth IRA. I paid no tax that year on this conversion because I elected the option of dividing the transaction half in 2011 and half in 2012. I submitted a 2010 Form 8606 memorializing this. I decided to recharacterize back to a TIRA because of the stock market. I understand October 17, 2011, is the deadline do do this. Because no taxes have been paid so far, I shall not be claiming any refund either. How do I report this to the IRS by October 17, 2011? Or will the documents I receive from the mutual fund company suffice now and at 1099 time in January 2011?
Thank you. Douglas
Permalink Submitted by Alan Spross on Thu, 2011-10-13 19:58
Douglas,
The filing answer is not entirely clear because the IRS has not issued their 8606 Inst for 2011 yet. But if you want to safely report the recharacterization, I would amend your 2010 return to delete the 8606 and that would also clear the record for 2011 and 2012. Another option is to wait for the IRS instructions to see if you can document this by simply attaching an explanatory statement about your conversion and recharacterization with your 2011 return.
But more urgently, if you want to recharacterize (and it is not yet processed), the time limit is now critical and may already be too late since custodians do this on a first come first serve basis. Most require paperwork and you only have two days left! The amended return can be done anytime in the near future, probably the best time would be before year end and the start of the next tax season. Both you and the IRS will get the 1099R in late January if you get the recharacterization completed in time.
Permalink Submitted by Douglas Broome on Sat, 2011-10-15 01:49
Thank you, Alan. Fortunately I have already done the recharacterization with the fiduciary. I have received their paperwork on this. Doubtless I shall receive a 1099R next January.
My question, unfortunately, remains about how to report this to the IRS.
Douglas
Permalink Submitted by Alan Spross on Sat, 2011-10-15 02:55
Since you filed your 2010 return, the safest way to handle this now is to file the 1040X as indicated and include an explanatory statement in the space on the 1040X, eg ” On xx/xx/2010 I converted $x from my traditional IRA to my Roth IRA. On yy/yy/2011 I recharacterized the entire conversion which was then valued at $z back to my traditional IRA. Form 8606 as filed on my original return is deleted.”
That should take care of it, and if you do this by the end of this year, the IRS will have it by the time the 1099R is issued, and the two will agree.
Then you are done. Your 2011 return will be as normal and will not show anything further with respect to the conversion or the recharacterization. The 1040X should be easy because there is no math or numbers you have to change. Just make the explanatory statement as above.