Recharacterization ?
In 2015 I converted 6K from my traditional IRA to a Roth IRA. This Roth IRA already had money in it from prior years conversion. Doing my taxes now using taxact software my taxable income is over 37,450, which puts me in a higher single bracket. I want to re-characterize 5k of the 6k before filing my return. My questions are:
*Do I need to calculate the profit or loss on the conversion, or does my custodian (Vanguard) do it?
*If my custodian does it will I get the information by the tax deadline of April 16th 2016?
*I read my re-characterization must be filed by April 16th 2016
*From what I know I should get a 1099-R by 1-31-2017 reporting the re-characterization in 2016. Will it show profit or loss from the re-characterization?
*I am over 50 and can contribute $6,500 to my traditional IRA. If I re-characterize 5k back to my traditional IRA before April 16th 2016 would this re-characterization reduce the IRA contribution I can make or can I still contribute $6,500?
Thanks
Permalink Submitted by Alan - IRA critic on Fri, 2016-02-19 03:34
VG will use their software to determine the net income attributed to the conversion. You will get the information by checking your IRA statement to see the amount actually transferred to the TIRA. You will not get the 1099R for this until Jan, 2017 but it will be coded to apply to your 2015 conversion. The 1099R will only show the actual amount transferred, not the amount of the conversion you recharacterized. You must make a note of the amount you requested recharacterized when you request it. If you submitted a form, make a copy of it. You also must include an explanatory statement with your 2015 return indication the amount and date of the conversion, the amount of the conversion you recharacterized and the amount actually transferred and date of the recharacterization transfer. This is how the IRS knows the amount you requested to be recharacterized. You would only report a 1,000 conversion on Form 8606. If instead of a conversion you recharacterize a regular contribution to a different type of IRA, the procedures are basically the same as the above. If you recharacterize a conversion it does not affect the amount of your regular IRA contribution, but it could increase the amount of that contribution that you can deduct if your original conversion increased your MAGI and that limited your deduction.
Permalink Submitted by fairira on Tue, 2016-03-01 20:18
Several years ago I recharacterized a Roth IRA conversion after I put that conversion into an existing Roth IRA with a balance. Vanguard erred in calculating the net loss and even claimed it was positive income which it clearly was not. When challenged by me, VG said its calculation was correc. Only after my second attempt to point out why their calculation was clearly wrong, did they correctly recalculate that it was a losss and the amount. Lesson to me: Always put any Roth conversion into a new Roth IRA and keep it there till after the recharacterization deadline since then VG seems capable of correctly calculating the net income/loss unlike when the conversion is placed in an existing ROTH IRA with assets.