Roth recharacterization for 2010
I have a client that did a Roth conversion in 2010, has not yet filed his tax return for 2010, and is now wishing to recharacterize the conversion. The IRS says that you can do this however the custodian in this case is saying that it can’t be done because the paperwork is dated in 2011. If the IRS allows this how can they turn it down? I talked to the client’s CPA and she isn’t sure. Any thoughts on this?
Permalink Submitted by Alan Spross on Tue, 2011-05-24 19:14
Sounds like the person at the custodian should not be dealing with such issues. That said, the client cannot recharacterize unless he filed a timely extension Form 4868 by 4/18/11. If the extension was filed, the client has until 10/17 to recharacterize the conversion. I can understand if they asked for a copy of the return or extension to make sure he has the option to recharacterize at this date, but their explanation makes no sense. I would elevate the discussion to a supervisor’s level at this custodian. I think the IRA agreement must include the option to recharacterize. Client could find the provision and then ask the custodian to READ IT and comply.
It is probably easier to try to reason with them, but if all else fails, the Roth could be transferred and the recharacterization processed by the new custodian.
Permalink Submitted by mk foss on Tue, 2011-05-24 20:10
It is possiblr to recharacterize by the extended due date of the tax return (October 15 most years) even if the return has not been extended. If tax was paid with a timely filed return, an amended return is not due by the extension date but the recharacterization must be complete by then.
Permalink Submitted by Alan Spross on Tue, 2011-05-24 20:29
True enough, but his post indicated that he still has not filed the return, so unless the extension was filed by 4/18, client is stuck with the conversion.
Remember that client can still split the conversion income between 2011 and 2012, if he wants to recharacterize to eliminate a current tax bill.