TIRA Conversion to Roth, Possible Recharacterization & then death
OK…I received a tremendous amount of help on my last series of questions about the conversion and recharacterization process. I am 68 years old and will turn 69 in March 2013 and 70 in March 2014 (so will be 70.5+ in 2014). I am married and my wife is 65 with no IRA. She would be the beneficiary of any of my IRAs.
I have converted $X from my TIRA to a Roth (leaving a modest amount left in a TIRA). The Roth is “seasoned” (not sure it matters at my age.) My goal is to see if I can grow that 35% or so by October 15, 2014 when final tax would be due on the conversion (and thus pay for the tax out of the Roth) or the recharacterization would have to take place (if I fall way short of the goal). All questions about payments, penalties, interest etc. have been answered. HOWEVER, the one question that is outstanding is what will happen if I die between now and October 15, 2014. (and I am not talking about RMD issues, but rather the entire conversion/possible recharacterization process.)
1.) Does it matter when I die in that period in terms of the plan I have established. My basic milestones in the plan are:
a.) Conversion (already done on January 10, 2013)
b.) 2012 Tax return and subsequent payment of 110% of actual 2012 taxes paid through estimated taxes for 2013 tax year.
c.) Filing extension April 15, 2014 and not paying expected conversion taxes with willingness to absorb 1/2% monthly penalty and going interest rate to October 15, 2014.
d.) Final decision on maintaining conversion or recharacterizing made by October 1, 2014 based on appreciation of that account.
2.) Will my death interfere with this process?? How??
Permalink Submitted by Alan - IRA critic on Wed, 2013-02-06 01:17
Permalink Submitted by Seth Poppel on Sun, 2013-02-10 08:36
I didn’t mean to imply that there was an imminent concern, but at my age, as the old saw goes, I don’t buy green bananas ;>>) Just wanted to be able to provide a full set of instructions, as I always do, with respect to my financial affairs when I explain it to my family periodically, just in case that bus does aim at me!! Thank you!!!!
Permalink Submitted by Bruce Steiner on Sun, 2013-02-10 14:03
Alan is correct that the executor can recharacterize. There are some issues that are or may be uncertain, such as (i) how the executor can recharacterize if the beneficiary has already taken the money, or set up an inherited IRA, (ii) to whom the executor owes a fiduciary duty in determining whether to recharacterize if the beneficiaries of the IRA are not the same as the recipients of the residuary estate, and (iii) whether an adjustment should be made to compensate the beneficiaries of the IRA for the tax cost to them of the recharacterization if they are not the same as the recipients of the residuary estate.There is another consideration if the beneficiary of the IRA is not the spouse. A living IRA owner who converts and recharacterizes can convert again. If the IRA owner dies but the IRA is payable to the spouse, if the executor recharacterizes, the spouse can convert later on. However, if the IRA is payable to someone other than the spouse, and the executor recharacterizes, the beneficiary won’t be able to convert later on. The executor may have to consider that in deciding whether to recharacterized.