401k to Roth IRA
I have a client who rolled her 401k to a Roth IRA in August of 2010. From the records I have seen it doesn’t appear she paid taxes on it last year. Is it possible to undo this conversion and move it to Traditional IRA?
I have a client who rolled her 401k to a Roth IRA in August of 2010. From the records I have seen it doesn’t appear she paid taxes on it last year. Is it possible to undo this conversion and move it to Traditional IRA?
Permalink Submitted by Peter Lingane on Wed, 2011-11-16 15:36
No. The recharacterization deadline was mid October 2011.
I suggest that her 2010 return be amended ASAP. The IRS will discover the error. If the return is amended before the IRS discovers it, it may be possible to reduce penalties.
Permalink Submitted by Alan Spross on Wed, 2011-11-16 21:30
She had to report the conversion on her 2010 return, but the default option for 2010 conversions was that half the income was reported in 2011 and half in 2012. She needed to file Form 8606 to report the conversion, but could have opted out by checking a box on the Form and paying the entire tax in 2010. Apparently, she chose to defer the income, but still needed to report the conversion on Form 8606.
If she failed to report the conversion, she does need to amend the return, but no longer has the option to recharacterize the conversion or to opt out of the two year deferral because that was the default option. As Peter indicated, the deadline to make those changes was a month ago.
Permalink Submitted by Peter Lingane on Wed, 2011-11-16 21:40
Alan makes a good point. If you did not examine the 8606, you might have missed the conversion income.