Paying the Price for Bad Advice
May have recieved bad advice on Roth conversion done last year, may have to pay taxes when we we told we would not have too so (comes from not aggregating other IRA’s rolled over last year). Do we need to file an extension by the 18th in order to do a recharacterazation later in October?
Thanks
SnakeCharmer
Permalink Submitted by Alan Spross on Thu, 2011-04-14 22:34
Yes. You need to either file an extension or an actual return by 4/18 in order to use the extended due date of 10/17 to recharacterize all or part of the conversion. That is also the deadline for deciding whether you wish to defer the 2010 conversion income to 2011 and 2012 or will report it all in 2010. This also gives you more time to generate earnings before making the final decision. The more earnings you have, the lower your effective tax rate is for the conversion.
Sounds like having to consider all your TIRAs (of each spouse individually) has resulted in more of your conversion being taxable than you expected. You cannot cherry pick your IRA accounts for conversion purposes. But if you need to, you can recharacterize any part of the conversion you want, but the better your earnings are the more attractive the conversion becomes.
Permalink Submitted by steve jackson on Thu, 2011-04-14 22:44
Thank you, Alan
A1, as always
Snakecharmer
Permalink Submitted by Bruce Steiner on Fri, 2011-04-15 03:11
Depending on your particular situation, the Roth conversion might (or might not) still make sense. And if it does, including the income all in 2010 might make sense, or including the income 1/2 in 2011 and 1/2 in 2012 might make sense.
Without knowing the specifics of your particular situation, we can’t tell what would be best.