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Recharacterization: What Amount Goes On The Form?

You are going to see a lot of information on the recharacterization deadline for 2010 Roth conversions, which is rapidly approaching, so you should be able to figure out what you need to do to accomplish a recharacterization. I want to answer the most crucial question for you, the one that confuses many people, and the one that is left out of most articles. When the form says how much do you want to recharacterize, what do you put down?

Recharacterization Deadline is Approaching

Approaching as quickly as a Caribbean hurricane is October 17, 2011, the day of reckoning for undoing 2010 Roth conversions. A recharacterization means reversing your Roth IRA conversion as if it never happened. Once this date passes, most individuals who made 2010 conversions that they did not recharacterize will be irrevocably locked into them as well as their accompanying tax bills.

Volatile Markets – What NOT To Do

Your client, prospect or you are jittery because of today's extremely volatile markets. He decides to move some of his IRA money to another investment. In order to do this, he decides to take a distribution of some of his IRA money to move to another custodian, perhaps a self-directed IRA custodian. But with the swings in the market he gets nervous that he might miss out on the upside while he is waiting for the paperwork to be processed for the new IRA. So he uses his IRA money, while it is outside of the IRA, to purchase his new investment. He figures he can just put the investment back into the new IRA, no harm, no foul, right?

Form 5329: Additional Taxes on Qualified Plans and Other Tax-Favored Accounts

What is Form 5329? Its title is "Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts." You should file the form whenever you miss a required distribution, take a distribution before age 59 ½ when one of the penalty exceptions does not apply, and when you make excess contributions. Those are most of the reasons to file the form. The form calculates any additional taxes owed (what are often called penalties) for certain IRA transactions. Not filing the form could only make things much, much worse.

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