BPickerCPA

Appleby, I have to disagree with you. If a single IRA is split after death and before 12/31 of the year after the year of the account holder's death, it is considered as if it were separate IRAs. Therefore the IRA of which the spouse is the sole beneficiary will compute spouse-as-beneficiary distributions using the spouse's recalculated life expectancy.

John, If he converted $8K which is now worth $7K, he saves tax on the entire $8K if he recharacterizes. You're correct that he only saves tax on $1K IF he reconverts (after waiting the more than 30 days). Barry

If the conversion in question is the only contribution to this specific Roth account, you effect a recharacterization by having all the assets in the account moved back to a traditional IRA. You would need to file an amended return to get your taxes back.

The answer is that it's too late to do a recharacterization of a 1998 conversion, unless you get a specific ruling from the IRS granting you permission. The process to get a ruling is a lot more complicated than just "contacting them". There is a user fee to the IRS for the request, and the request has to be in a specific format. Most people hire pros to handle ruling requests. For the value of IRA you are talking about, it probably does not pay.

It does NOT count.

If you make an excess contribution in one year, you can count it as a contribution in a future year, if you are eligible in that year. To answer your second question, you cannot get tax free income from an excess contribution. You must first remove the excess contribution AND THE APPLICABLE INCOME, and the income is taxable. So the notion of leaving it there to earn tax free income is erroneous.

Every year until you withdraw it.

If the spouse is not the sole bene, then the calculation is just like any other bene.

The people I spoke to said that a split of the account after death is exactly what is anticipated, and that each bene can use his/her own life expectancy. A payoff to the spouse is a cashout, and she is no longer a bene. The remaining bene is then the designated bene on the 12/31 of the year after the year of death. This is true even if the spouse rolls her distribution over to her own IRA.

Bruce, To expand on the previous reply -- I spoke to people in Washington because I wanted to get the "right" answer for my new book, "Barry Picker's Guide to Retirement Distribution Planning". I was told that the new laws will not apply to beneficiaries when death was before 2000, but I suspect that there will be a change in the final regs. No basis for the belief, just a gut feeling. The problem is that there are various scenarios, and I don't think each one was considered. Scenario 1: Death in 1999, after the RBD, no beneficiary, recalculation - The account should have all been paid by the end of 2000, so the point is moot. Scenario 2: Death in 1999, before RBD, no distribution taken in 2000 - Old law puts you into five year rule, new law will not give you relief. Scenario 3: Beneficiary changed between date of date in 1999 and 12/31/00, either because of payout (e.g. of a charity) or a disclaimer. Beneficiary is stuck with a faster payout than if he could use his own life - I believe here too the bene is stuck with old law. Old law looked at bene at time of death, new law will not give relief. Scenario 4: H named W as bene on RBD, elected term certain. W dies and H names child. H dies in 1999, with child as bene. Child has to take distribution over remaining term certain of H and W - this is the only scenario where I think the IRS MIGHT allow the bene to use the new law, by allowing him to now switch to the remaining years in his own life. CAVEAT: The above is NOT law, it is only my opinion, not worth the bytes it's written on.

Bruce, I must have been sleeping when I answered the question. I must have thought it said "death in 2000". According to the people in Washington, the new rules do NOT apply if death was BEFORE year 2000. As you say, Bruce, this could change in the final regs.

No.

There is no age limitation on converting to a Roth. The only factor to consider is that once you reach your 70½ year you have to take your minimum distribution before you can convert to the Roth.

It's never too late to save. You just to figure out which is the best vehicle for you.

Yes, as long as you realize that "this year" means 2001, and you meet the income limitations.

John, I've said it before. There is nothing more frustrating than telling someone who comes for a tax return, or with a tax question, that there is nothing you can do NOW, but if they had come to you at the time you could have helped immensely. But such is life. Barry

It is my understanding that they do. This is from IRS people in Washington.

You can't be paying tax on the same money twice, because once the money is out of the IRA, it's out of the IRA. EXAMPLE (to continue): You had $100K, $72K went to the Roth and $28K went to the IRS as withholding. Your conversion is only $72K and your recharacterization is deemed to be $72K. The $28K is out of the IRA and cannot now be replaced. You are taxed on the $28K. If you now convert the $72K (or whatever value it has now become), that is what you will be now be taxed on.

One should never have withholding on a roth conversion. If you had 28% withholding, then you only converted 72% of the IRA to the Roth. The balance was a regular distribution. EXAMPLE: An IRA worth $100,000 is converted, with 28% withheld. In fact, the conversion is $72,000 and $28,000 is a regular distribution. You now recharacterize the $72,000. You are still taxed on $28,000, it is subject to the 10% early withdrawal tax, and that amount is now totally lost from `your retirement account. You have a credit of $28,000 on your return, which will more than cover the tax, but the real loss is in the future compounding of that amount.

Off the top of my head, I can't think of any reason why it can't be done. Perhaps the trustee's computer already shows the contribution (and not the reversal), so it is saying that you've already met the limit. You may want to sit down with a qualified pro to get a researched answer. If necessary, open the 2000 Roth with another trustee.

You have to wait 31 days.

Yes, it's simply a matter of finding out the amount to recharacterize and the amount to leave in the Roth. Unfortunately, the computation itself may not be so simple.

Your question is confusing. Why did you pay tax on the conversion if you recharacterized? I suspect you may mean that you had withholding on the conversion. That could be a problem because the amount withheld does not constitute part of the conversion and is considered income and subject to early withdrawal penalty. You would get credit for the tax withheld. Please clarify.

It may depend on the plan documents. You probably can't take in service distributions and roll them over.

The answer is no. If you go off the plan for any reason other than death or disability, you owe the 10% penalty on all money taken out.