Roth recharacterization strategies
A recharacterization strategy that is talked about often is to convert investments or assets classes into separate Roth IRAs so you have the ability to recharacterize just that specific investment or asset class in the case of poor market performance. If the funds were held in one Roth IRA, any recharacterization would have to be done proportionally. My question is this: Would it work to convert to just one Roth IRA plan intially but then move investments out to newly created Roth IRAs and do separate recharacterizations? Would the tax situation be the same as it would be if the separate Roth plans were created intially?
Thanks for any help with this.
Sten
Permalink Submitted by Alan Spross on Wed, 2010-03-03 18:56
No, the result would be totally different. If a conversion is moved around between different accounts prior to recharacterization, ALL the account are considered in the earnings calculation, even if they held the conversion for only a short period of time. Therefore, creation of new accounts AFTER the conversion was done to a first account would have the same outcome as if the additional new accounts had not even been opened. There would be only ONE conversion to recharacterize, the funds could come from any of the accounts that held that conversion, and the earnings would be calculated using all of the accounts that ever held the conversion assets.
The conversions should be done into different Roth accounts from the beginning.