401K conversion to Roth IRA; recharacterization to TIRA

Submitted by Christopher Combs on Sun, 2014-08-10 19:04

Alan et al,

Last December my client converted $64K from a pre-tax 401K plan into his Roth IRA. The distribution took place in December 2013 and the deposit was made in January 2014.

The client has filed an extension and his CPA is now recommending a $25-30K recharacterization from his Roth IRA into a Traditional IRA before Oct 15th.

Question #1: Since the funds came from a 401K (not a TIRA) originally, is there any problem with this?

Question #2: Our plan would be to “re-convert” all or a portion of this before Dec 2014. Is there any problem with this?

Question #3: The client made a $5,500 CONTRIBUTION to his Roth IRA for 2013. Does this change our strategy at all?

Thank you,

Chris



Submitted by Alan - IRA critic on Mon, 2014-08-11 02:42

  1. No problem with recharacterizing to TIRA, in fact that is the only choice.
  2. A reconversion of the same assets can be done on the 31st day after the recharacterization was processed. No need to wait until 2015 because this is considered a 2013 qualified rollover contribution (because the distribution was made in 2013).
  3. No change since the recharacterization will only reduce MAGI for 2013. The reconversion will be taxable in 2014, and could make 2014 MAGI too high for a 2014 regular Roth contribution.

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