30 Day Reconversion Rule
On December 3rd of 2009 I turned in my recharacterization form to Fidelity and TD Ameritrade. TD Ameritrade processed the request on December 3rd while Fidelity processed the request on December 7, 2009. On January 4th, I reconverted some of my TIRA with TD Ameritrade which they processed on January 5th. Fidelity now allows the customer to enter their conversion transactions directly on-line. At about 9PM on January 5th, I reconverted some of my TIRA account with Fidelity using this new program making the assumption that it would be processed at the closing price on January 6th. Bad assumption! They processed it effective with the close of trading on January 5th.
My first question involves the 30 day rule. Did I make a correct assumption in figuring that each brokerage account had its own 30 day rule? If that is correct, is the best way to correct the problem with the Fidelity account is to convert additional amounts out of the TIRA with Fidelity and then later in the year, do a recharacterization of the stocks that were converted on January 5th. As always, I appreciate this Forum and the excellent quality of the advice given.
Permalink Submitted by Alan Spross on Thu, 2010-01-07 17:27
The 30 day waiting period applies to any reconversion of the “same amount” in IRS language. But “same amount” really means the assets traceable to the recharacterized amount. If there has been no change in brokers for the Fidelity recharacterized assets, the rule would effectively apply per broker. If the same holdings (issues) are involved in the second conversion, then we are in a gray area with respect to defining the “same amount”.
This situation is the reason why it is recommended to recharacterize into a new TIRA account so that the assets can be traced. If you do the second conversion prior to the recharacterization from different assets, then the new TIRA account would not be necessary since the amounts are obviously then different.
In your situation, before determining the need to act, please verify that:
1) The funds had LEFT your TIRA for the reconversion BY the end of the day on 1/5. Even if the 1/5 closing price was used, there is at least a possiblity the funds did not move until 1/6. You should also check the date of arrival of the recharacterization in December.
2) The Fidelity TIRA did not hold enough funds so that the second conversion could have been done with different assets. Did the IRA hold other assets than the recharacterized ones, and were the same issues converted the second time as were recharacterized?
If this appears to be a failed conversion, then we can deal with the corrective activity.