If you had 100k in the Roth OR you recharacterized it back to the TIRA, it would grow at the same rate if invested the same way, ie. if the 100k in the Roth would grow to 800k, so would the recharacterized 100k in the TIRA. Not sure where the 400k comes from. You must also factor in growth in the tax dollars you save from recharacterizing.

If you want to fill your current tax bracket each year and do not mind doing recharacterizations, you could combine those strategies. You could still set up separate Roth conversion accounts and then retain only the best performers up to the top of your present bracket and recharaterize the rest. That keep a lid on the cost you pay for your conversions, and also gives you a head start for positive earnings on the conversions you retain.

With the state of the deficit and Congress’ habit of making highly temporary tax changes, forecasting is difficult even in the near term, tougher over your entire life expectancy, and almost impossible if you try to assume what your beneficiaries are going to do with the inherited Roth over and above their RMDs.

Another factor is that your first Roth conversions are better values because they are reducing your marginal tax rate on future RMDs. Once you convert enough such that your marginal rates drop into a lower bracket in retirement due to reduced RMD amounts, your conversions become worth somewhat less. If you get your RMDs down to the point that you may be in the 15% bracket, it makes no sense to convert at a cost of 25%. If Congress hits us with a national sales or VAT tax, a Roth will be worth less than it would be under the income tax system.

Having a basic plan for Roth conversions is good and the incremental conversion strategy makes sense with or without the “cherry picking” recharacterization strategy. But you still need to revisit your plan every couple years to in view of your personal financial situation and in view of tax law changes, RMD changes, changes with your heirs etc. It is just a possible to convert too much as too little, but the pain of paying taxes early keeps most people in the “too little” camp.

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Yes, that is a good illustration and particularly good that you are re combining the accounts after all chances of recharacterization have ended so you don’t end up with dozens of unneeded accounts.

But there are several ideas that spin off of this basic format and may be useful in certain cases:
1) There is a point at which you would not recharacterize any of them if earnings were high enough
2) Conversely, a point at which you would recharacterize all of them if they all had large losses.
3) You might also invest one is a stable value asset if you know up front that there is a minimum that you don’t want to have losses that might make you want to recharacterize
4) I would not let the results affect my decision if the gain or loss was with a 10 point range and the assets are volatile, ie a 10 point gain or loss could be gone a month after the Oct deadline
5) While you could file your return in April if you thought there was not much chance of recharacterization, if you choose to use the entire extended due date period before you decide you would probably file an extension prior to 4/15. One extension gives you the 6 months now. But don’t miss the 4/15 deadline or you can’t recharacterize at all because 4/15 then becomes the deadline, not 10/15.
6) Be aware that you should attach an explanatory statement to your return stating the dates and amounts of the conversions and the amount recharacterized along with the value when recharacterized. That will reduce IRS inquiries because they don’t know you recharacterized until the following January.
7) You could add a 4th 30k conversion for added flexibility and leverage, ie better chance for 75k worth of gainers to retain and more asset classes. Once you have to go through the recharacterization mechanics and reporting, having another account or two is not that much more work.
8) Be sure you are aware of the rules for disallowed reconversions, ie you cannot reconvert the “same amount” in the same calendar year as the original conversion or within 30 days of the recharacterization. Your example would not be a violation of this.
9) In the recharacterization process, you are recharacterizing portions of specific conversions. What stocks you select to migrate back to the TIRA is immaterial. Eg if your 30k conversion is half stock A and half stock B, you can sell one of them at anytime in the Roth and replace with C. If this Roth turns out to be one in which you want to recharacterize only 15k of the 30k conversion, you can select any combination of the investment left that add up the income adjusted loss in the account. So if 30 k loses money to 25k, you can recharacterize back ANY holdings that add up to 12,500. If you don’t want to sell issues you have, you would select the better ones to stay in the Roth and send the ones that you are not that optimistic about back to the TIRA. But you are free to change investments at anytime. You can only recharacterize by DIRECT TRUSTEE Transfer, not by rollover.

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Merry Christmas to you also.

The extension of the due date to October 15th is not automatic. It only applies if you either file your tax return OR file an extension request by 4/15. If you fail to do either, then you don’t get the due date extension and 4/15 becomes the due date for recharacterizations or correcting excess contributions.

If you expect that you will have to amend your return in the fall anyway, it is probably easier to just file the extension rather than a complete return you will have to amend. But if you file the complete return by 4/15, that will also get you the extended due date. The important thing is NOT to let 4/15 pass without doing one of the two.

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Yes, that’s correct. But you wouldn’t ever recharacterize the tax free conversion of the after tax 401k money. Even if that Roth took a large loss, you wouldn’t recharacterize it since you paid no tax on it to begin with. Good that you did the other conversion into a separate Roth, since that one is taxable and you might choose to recharacterize it.

If you do recharacterize the second one, then you would amend your return on a 1040X and include an explanatory statement on the conversion and recharacterization.

Note: You have a tax free conversion and a taxable conversion, but you must make the same election on income reporting for both, but of course there is nothing to defer on the tax free one. This just means that if you want deferral on the taxable conversion, you must also show the other one as deferred even though there is nothing to defer. This is handled on the 8606 Form.

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After suffering a loss I recharacterized a Roth conversion I made in 2010, which means that I won’t be able to reconvert the TIRA in time for the default 2011/2012 tax deferral.

I have a smaller TIRA with another firm. Can I transfer part of the recharacterized account to this smaller TIRA and then convert the enlarged TIRA to a Roth this week to take advantage of the tax deferral, or would the IRS consider this as an attempt to evade the restriction on converting, recharacterizing and reconverting the “same amount” in 2010?

Would it be any better if I took a distribution from the recharacterized account and then rolled it over to the newly converted account?
Or would the funds still be ineligible for conversion for the 2011/2012 tax deferral?

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