Planning for 2017 Roth

Submitted by CARROLL WILLIAMS on Thu, 2016-12-08 03:56

This past September I rechacterized part of a 2015 Roth Conversion back to an empty TIRA account. Are there any issues or reporting problems with the 1099R and 5498 if I now move additional funds to this same account in preparation for my 2017 Roth Conversion? Many Thanks



Submitted by Alan - IRA critic on Thu, 2016-12-08 23:21

No problem in doing this. The 1099R for the recharacterization does not have to be reported as long as it agrees with what you reported on your 2015 return, which should have had an explanatory statement included regarding the partial recharacterization including amounts and dates of the conversion and recharacterization. You do not report the recharacterization on your 2016 return. I assume you did not do a 2016 conversion and understand the disallowed reconversion rules.

Submitted by CARROLL WILLIAMS on Fri, 2016-12-09 02:18

Thanks Alan.  Yes, I did include an explanatory statement with my 2015 return that I filed in October.  But 2 questions.Why do you assume I did not do a 2016 Roth Conversion, because I did in April from a different TIRA?  Hope that wasn’t  a problem.  Second, could you brief me on the disallowed reconversion rules?  I am only aware of the waitingperiod for using the same money.

Submitted by Alan - IRA critic on Fri, 2016-12-09 02:32

  • The waiting period IS the disallowed reconversion rule. While the IRS is not active in investigating reconversions, to provide a little added security for those doing frequent conversions and recharacterizations, it is recommened to recharacterize to a different IRA account than the one funding the conversion. That way, since the recharacterized money stays in a separate account and conversions come from a different account, it is obvious that there could NOT be a disallowed conversion and very easy to explain this to the IRS should they ever ask.
  • If there had been no conversions in 2016 which you can still recharacterize, I thought enough time had passed to not even get into this complex subject. But since you DID do a 2016 conversion which you could end up recharacterizing (any part) to the same account as the prior recharacterization, it becomes a possible issue since I think you planned to convert from this same IRA account in 2017.
  • So if you have a different TIRA that funded the 2015 conversion and it is large enough to also fund the 2017 conversion, I would lean toward converting from that account and leave the other for recharacterization contributions. Again, I don’t know how many conversions you might be doing each year or where the money you were going to transfer into the recharacterization IRA account was coming from, so would need to know more to recommend the best account management strategy for the conversions and recharacterizations. In summary, having also done a 2016 conversion is enough to warrant bringing this up since you did ask about any issues.

Submitted by CARROLL WILLIAMS on Fri, 2016-12-09 03:22

Thank you for the thorough explanation.  I believe I have kept these transactions all properly isolated so there would be no doubt, should the IRS ever have questions.    I seriously study every detail you bring up.  You have helped me more than  you know.      

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