Roth Conversion, Rehcaracterize, Conversion
Can someone help my brain untangle this?
A client wanted a $25k conversion from her IRA to her Roth done every year in Jan.
For some reason, the broker in 2016 did one in Jan and another in late December. Said it was a mistake and should have been in Jan 2017 but offered no help.
Client unhappily filed her 2016 and paid the tax.
In early 2017 the broker did another $25,000 conversion.
Client moved the accounts and re-characterized the Dec 2016 conversion in early Aug 2017 and amended the 2016 tax return.
Client did another conversion in late September 2017 (40 days after the re-characterization).
I can’t figure out the 30 day rule vs the next year rule on re-characterization and then conversion.
Is she OK timing wise?
Permalink Submitted by Alan - IRA critic on Wed, 2018-03-21 18:47
Yes, she is OK. The waiting period is 30 days after the recharacterization if the recharacterization was a prior year conversion. Since the recharacterized conversion was done in 2016, she need only wait 30 days after the 2017 recharacterization to reconvert the same assets. But now the client has two conversions taxable in 2017, the 25k conversion done early in the year and the one done in Sept. If that is too much 2017 income, client can still recharacterize a 2017 conversion up until 10/15/2018. Of course, any conversions done this year cannot be recharacterized, so client needs to be careful about how much she converts from here on.
Permalink Submitted by Mobey on Wed, 2018-03-21 19:38
Many thanks – after posting and researching more I came to the same conclusion!