Partial echaracterizing
For Recharacterizing a Roth IRA conversion, can you recharterize partial of the money, or do you have to Recharacterize the whole amount that was converted?
For example, if I did a Roth conversion of $100,000 can I later rechartize $50,000, or do I have to Recharacterize the entire $100,000?
Permalink Submitted by Alan Spross on Mon, 2010-08-23 20:18
You can recharacterize any portion of a conversion you wish, but if you do a partial you will need an 8606 to report the portion of the conversion that remained, and you will need an explanatory statement regarding the portion you recharacterized.
Using your example, assume you converted 100k early this year with the idea of reporting 50k in 2011 and 50 k in 2012. Later on you decide that you do not want to take a chance with tax rates in 2011 or 2012, and want to use your 2010 bracket up to the top of the 15% bracket. After all your other incomes and deductions are known next March, you know that you have room for 15k to be taxed at 15% in 2010. You then recharacterize 85k, and on your 2010 return you opt out of the two year deferral and report the entire 15k in 2010.
This strategy is much simpler in years that affected by the complex 2010 rules. You just convert the most that you would consider paying taxes on. Then you recharacterize back to the top of your current bracket after all the facts are known.