Roth Conversion
Client converted $100k in 2010 and recharacterizes $40k in 2011 client is on extension. How does this get reported on the 2010 return?
Ed’s newsletter from March 2011 (bottom of pg4) runs through a similar example BUT both conversition and recharacterization happen in same year 2010. My question is different years.
Permalink Submitted by Alan Spross on Thu, 2011-10-06 19:08
Client should include an 8606 showing the $60k conversion that remains, and make the decision on line 19 to report the conversion @ 50% in 2011 and 2012 OR to opt out of the two year deferral and report the entire 60k as taxable in 2010. Further, an explanatory statement should be included with the return, eg “On xx/xx/2010 I converted $100,000 from my traditional IRA to my Roth IRA. On yy/yy/2011 I recharacterized $40,000 of the $100,000 conversion, which was then worth $z, back to my traditional IRA. The remaining conversion is $60,000.”
Since the recharacterization was for a 2010 conversion, the recharacterized amount can be reconverted after a 30 day waiting period from the date of recharacterization. The reconversion is treated in all respects as a 2011 conversion, taxable in 2011. If the remaining 60k from the original conversion is reported half in 2011 and 2012, the half for 2011 would be added to the 2011 reconversion amount on the 2011 8606. Many recharacterization decisions are integrated with the reporting choice of years for 2010 conversions. But the 2010 return must be filed by 10/17 to document an opting out of the two year deferral and of course the recharacterization must be completed before then if the proper explanatory statement is to be included with the 2010 1040.
Also note that the figure for “z” will agree with the 1099R showing the dollar amount that actually transfers back to the TIRA according to the earning calculation while the full 100k was in the Roth IRA.