Roth IRA Conversion/Re-charecterization
I have a client who did a partial conversion, various individual equities, in 2008 and 2009, and he re-charecterized some of them in April 2009. He wants to convert some of those same equities plus some new ones by year-end 2009, can he do that or does he have to wait until 1/1/2010? Thank you
Permalink Submitted by Alan Spross on Thu, 2009-12-24 17:29
Reconversion of the 2008 amount is OK now because this is a different year and over 30 days from the recharacterization has passed.
Reconversion of the 2009 amounts must wait until 2010, which is the later of 30 days from recharacterization or the beginning of the next calendar year.
That said, the reconversion limitation is applied to “amounts”, not to actual investments. An “amount” is not a dollar amount or a specific holding, but is actually meant to reflect the assets used in the conversions. Usually, the reconversion problem applies to those who convert their entire TIRA accounts to a Roth, since reconversion here is obviously done with the same assets as the first conversion. In partial conversions, it is easy to avoid a reconversion of the same amount. For example, if your TIRA is composed of 1,000 shares of X and you convert 500 or them and recharacterize that conversion, you can still convert the other 500 shares of X because that other 500 is a different amount even those it is composed of the same investment. In order to make it clear to the IRS that there is no disallowed reconversion, in the example it is recommended to recharacterize to a different IRA account # than the original. If the recharacterization went to Acct B and the other 500 shares were in Acct A, when you convert A it cannot be the same amount because the original “amount” are in a different account.
Also, if you do the second conversion of different amounts before the recharacterization, you obviously cannot have a disallowed reconversion since both were done prior to any recharacterization.