Roth Recharacterizing a non-traded real estate IRA.
I need help to recharacterize a Roth to an IRA. The IRA to Roth converted 100K of IRA funds last February. The account is now worth about 60k, including some dividends received from the investment. Can we still do a full recharacterization for the total 100K and note that the current value is 60k, which includes dividends and a Fair Market Value appraisal. The Roth consists of non-traded real estate and now has some dividends which were distributed to them. Or perhaps we just note the current FMV of the roth and only recharacterize that alue based on the FMV of the investment and leave the dividends in the Roth making it a partial recharacterization? Thanks!
Permalink Submitted by Alan - IRA critic on Mon, 2016-05-09 20:56
If you converted into a new Roth IRA, a full recharacterization would simply result in transfer of the entire Roth account balance back to your TIRA. If you converted into an existing Roth or added funds to the account in addition to the conversion, then the custodian will have to determine the gain or loss on the entire Roth account. They might require an appraisal to determine the value of the RE at the time of the recharacterization in order to determine the value of the entire account. DIvidends just result in the account value on the date of recharacterization being higher than without dividends. Obviously, the recharacterization process is much simpler if you converted into a new Roth account that holds only the RE investment.
Permalink Submitted by Ronald Birnbaum on Tue, 2016-05-10 18:30
Thanks – they did convert into a new Roth IRA. Can they recharacterize the entire account now which includes dividends received? The original was a 100k investment. It has been appraised at some 53k, not including dividends received. So when we recharacterize we’ll still recharactize the 100K but note it is now worth 55k, the current FMV plus the total of dividens received. Is that our procedure? Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2016-05-10 20:30
Yes, the entire current value of the IRA including the dividends (if that IRA holds no other contributions other than the original conversion) is transferred back to the TIRA account. That should be automatically done by the IRA custodian if you request a full recharacterization.