2010 new conversion rule and options for recharacterizing
Little confused…
Using the new method as I understand , if someone converts an amount in Jan 2010….50% of that amt is applied to 2011 income and the remaining 50% is applied to 2012 income . Recharacterizing
options is where I get very confused .
1. Does this person have as late as the extended tax deadline of oct 15 2011 or 2012 to recharacterize the income applied to 2011 ?
2. Is there another deadline for recharacterizing the 50% converted in 2010 but applied to 2012 ?
3. Is the amount recharacterized substracted from the 50% applied to each year and can be done for each year individually or is the amount chosen to recharacterize subtracted from the conversion amount selected in 2010 and the remaining amount is split 50-50 and applied equally to income in 2011 and 2012 ?
4. Since it appears a Jan 2010 conversion would not know the tax brackets for 2011 or 2012 can you recharacterize more than 1 time as tax brackets and rates become known ?
5. Would this offer a person the bonus of being able to look back at the performance of assets in stock market and add this to the decision making ?
I am sure I have some twisted and false assumptions …thanks in advance for clarifying !
Permalink Submitted by Alan Spross on Tue, 2009-08-11 04:06
1. 10/15/2011 is the deadline for recharacterizing all or part of the 2010 conversion. If recharacterized, the taxable amounts in 2011 and 2012 would be reduced equally. There is no way to recharacterize JUST the 2011 portion, or JUST the 2012 portion. 10/15/2011 is also the deadline for opting out of the two year deferral. In some scenarios, a taxpayer might choose to recharacterize some and opt out on the deferral, leaving only a smaller taxable amount to report in 2010.
2. No.
3. The latter
4. Yes, more than one partial recharacterization is possible, but none after 10/15/2011. By that date, the tax rates for 2011 and the taxpayer’s total situation in 2011 should be fairly well known. 2012 much less so.
5. Definitely. The better the experience the less likely to recharacterize. This is pretty much the same situation as for pre 2010 conversions, except with the added tax deferral options.
There will be plenty of articles flooding the marketplace on the questions you asked here and probably some others as well. All in all, late summer of 2011 will be the season of plenty of reviews and tax estimates being requested because there will be more conversion DOLLARS in 2010 than probably in all prior years combined. Expectation of tax rate increases will further drive this. More conversions dollars will therefore translate to more recharacterization dollars as well, but will still be affected by market performance.
Permalink Submitted by Carolyn Pearson on Tue, 2009-08-11 15:56
Alan , Hello !
As usual your answers are so clear and very well composed .
Thank you again and have a good week.