Roth conversion from one of two custodians
I am a 71 year old retired teacher. I have been reading the Q and A on this site and find it very useful. I think I know what to do now, but since it involves such a big part of my retirement funds, I would like to run it by you for comment: On January 7, 2010 I converted all of my IRA at Fidelity to a Roth IRA, also at Fidelity. My plan is to sit and wait until October 1, 2010. Then, if the markets are back up I do nothing. If they are down significantly from the start of 2010, I plan to convert the same initial dollar value in the other account I have (IRA at Vanguard) to a Roth IRA at Vanguard. Then, I will immediately recharacterize my Roth IRA at Fidelity to an IRA at Fidelity thus locking in a lower tax liability.
Do you see any technical problem with this plan? Thank you for your help.
Thank you.
Permalink Submitted by Alan Spross on Wed, 2010-02-10 22:30
There is no technical problem, specifically the second conversion would not be considered a disallowed reconversion since it will be executed prior to recharacterizing the first conversion.
10/1 is just an arbitrary date you are choosing. You could use a different date and the recharacterization deadline for 2010 conversions is not until 10/17/2011. So you have a much longer period of time to determine whether you will recharacterize ANY of your 2010 conversions. The only real deadline is that to have a 2010 conversion, the distribution MUST be made no later than 12/31/2010.
What 10/1 would do for you is represent a date under which you could extend your 2010 return and then file it after your recharacterization and would not have to report the recharacterized conversion. If you wait longer you would have to file 2010 and then amend it if you recharacterized after you filed to eliminate a conversion.
As far a market performance, the selection of any date at all can work for you or against you at the whims of the markets. Even if you waited well into 2011 to recharacterize, there is nothing to prevent either a bull market or a bear market from starting the day after your decision.
Permalink Submitted by O Hayes Griffith on Thu, 2010-02-11 00:58
Dear Alan,
Thank you for your quick and helpful response. What I wasn’t absolutely sure about was that I could recharacterize a contribution any time up to the income tax filing deadline, plus extension. I picked October 1 somewhat arbitrarily but that is a date that I usually rebalance. It is nice to have a plan, and follow it, even if it may not be perfect. Your frequent responses to posts have been a big help to me and I am sure others. A lot is at stake in these decisions.