2 Year Deferral & Amend Return Recharacterize
I have two questions:
1) Is the 2-year deferral of income from the Roth conversion an irrevocable election? For instance, if I elect to defer the income to 2011 and 2012 and then next year, Congress says that the 2012 rate goes to 39%, can I amend my 2010 return to include all the income in 2010 instead? (Forget about 2010 underpayment penalties).
2) I can’t find anything definitive on this, but maybe I haven’t looked hard enough. Is it necessary to obtain an extension to obtain the extended due date to be able to recharacterize? For instance, if I want to still be able to look at my portfolio in September and recharacterize if it tanks, did I need to obtan a federal extension? Also, does the return have to not be filed in order to recharacterize (ie, can I amend a return in which I reported a Roth conversion if the portfolio later tanks)?
I recently discovered this board, and I hope to be a part of it for a long time. Thanks!
Chris
Permalink Submitted by Alan Spross on Sat, 2011-04-16 17:15
Chris,
1) Conversion payment options are revocable until the extended due date of 10/17/2011, after which the decision cannot be changed. 10/17 is also the recharacterization deadline. Someone opting out of the two year deferral may also want to recharacterize part of their conversion. For example, if 100k was converted with the original plan being deferral of 50k to 2011 and 2012, a taxpayer might want to recharacterize 50% of the conversion so that no more than 50k was taxable in 2010. Later conversions in 2011 and 2012 could be done utilizing fresh data on tax rates, income changes etc.
2) An extension is only required if you do not file your 2010 return by 4/18. If you file it, you can amend it later, even after 10/17, but the recharacterization must be done by 10/17. If you expect to recharacterize, it would be better to file an extension by 4/18, then the return prior to 10/17.
Under current legislation, the tax rates are set through the end of 2012, although brackets will still get inflation adjustments.