Reporting Recharacterization
Converted $20K in 2010 and chose to pay taxes in 2011 and 2012.
Recharacterized total amount (including gains) on 10/17/11 back into my TIRA.
1) Do I have to do an amended return for 2010? If so, by when?
2) If I send in a form showing the recharacterization with my 2011 tax return is that all I need to do?
3) Would my RMD for 2011 be based on the total of TIRAs at the end of 2010, or would I need to add the $20K back into that total to find the correct RMD for 2011? (I have taken more than the required RMD for 2011, but need to know what figure to put on my tax return to avoid any penalty)
Permalink Submitted by Alan Spross on Wed, 2012-04-04 18:39
1) Yes, you should file an amended 8606 with a 1040X for 2010. This should be easy to complete since no numbers will change on the 1040, but your amended 8606 showing no conversion should clear the expected conversion income off your 2011 and 2012 returns. In the explanation section of the 1040X state the date and amount of your conversion and the date and amount you recharacterized and what the amount was that transferred back to your TIRA.
2) Your 2011 and 2012 returns need not contain any further reference to the conversion as that is taken care of with your 1040X.
3) Your 2011 RMD would use the year end 2010 value plus the amount that transferred back to the TIRA in Oct, 2011. SInce it is unlikely that the exact 20,000 transferred back (check your 1099R for the recharacterization figure), you would add back the amount shown on the 1099R. If the RMD you took out in 2011 was enough to meet the new calculation, there is nothing you need to do except report the distribution on your 1040 as usual. The IRS does not care if you take out more. If you took out LESS than the revised calculation would indicate, then you need to file a 5329 and request that the penalty be waived and take out the shortfall now.
Permalink Submitted by Deena Wagner on Wed, 2012-04-04 19:03
Thank you so much. Your answer is very clear and concise. I have been trying to get this answered at the IRS and at Turbo tax and their answers were not very clear.
By the way, Turbo Tax does not handle this properly. They ask if this is a conversion, but then they add the $10K in as income, inflating the taxes you owe.
This is a wonderful site and the answers are much appreciated.
Deena