Recharacterize an roth ira conversion

Submitted by Antonio Ficca on Tue, 2016-11-08 21:24

If I make a roth conversion in dec of 2016 I have until oct 2017 to recharacterize it if the value of the conversion is less, to avoid paying the taxes. How would I report this in my tax return. Would I need to make a amended 2017 return or is this reported in my 2018 tax return.



Submitted by Alan - IRA critic on Wed, 2016-11-09 00:20

You will have to amend your 2016 return to delete the conversion reported on Form 8606 unless you file an extension that results in just one return prepared up to the same deadline as the recharacterization deadline.  Since the recharacterization 1099R will not be issued until Jan, 2018 coded to apply to calendar year 2016, when the 2016 return is filed an explanatory statement should be included explaining the dates and amounts of the conversion and the recharacterization. Your 2017 return is not affected by this activity as indicated on the 1099R coding in Box 7.

Submitted by Antonio Ficca on Fri, 2016-11-11 19:38

“Your 2017 return is not affected by this activity as indicated on the 1099R coding in Box 7.”Can you provide alittle detail as to what will be contained in Box 7 that supports your statement above.

Submitted by Alan - IRA critic on Fri, 2016-11-11 20:00

  • Yes. Box 7 has a distribution code that defines how the transaction should be treated. While a recharacterization is always a transfer and not an actual distribution, it reverses a prior transaction. In this case, the 1099R would be issued in Jan, 2018 on a 2017 form 1099R. The Box 7 code will be “R”. R means that the transaction being recharacterized was done in a prior year (2016), not in 2017. So it is your 2016 conversion reported on your 2016 return which is changed.
  • If you are converting very late in 2016, you may well not know or have completed the recharacterization when you file for 2016. If you have completed it by April you can file 2016, not report the conversion and include an explanatory statement on your return stating the date and amount of the conversion and the date and amount of the recharacterization. Another option is to extend your return till Oct, 2017 if you plan to wait out the recharacterization decision to Sept or October, then just file correctly. That eliminates an amended return. But even then you should include the explanatory statement since the IRS will think that you converted up till Jan, 2018 when they finally get the 1099R. The statement will eliminate the IRS sending you an inquiry.

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