Roth IRA Unconvert

[Guest Paul throop]

I just read the article on "unconverting" a Roth IRA. Am I reading this correctly? Does it really say that stocks from a traditional IRA can be converted to a Roth and then if the stocks go up they can be held in the Roth and if they go down, they can be put back it the traditional IRA and no taxes paid for the conversion for the year 2002?

Is there an IRS form available with this data? This is a no lose project and I would like assurance that I an do it without being stuck at the end of the year with stocks worth less after paying tax on the higher value conversion amount.

Thanks for your help Paul pathroop@aol.com

[John G]

Sorry, you can't cherry pick winners and losers to recharacterize (unconvert) a Roth.

You may want to read the middle of this Barry Picker article that warns against cherry picking and includes an example....

http://www.rothira.com/recharacter.htm

[BPickerCPA]

While John is correct that you can't "cherry pick", I think Paul's question referred to the account as a whole.

If so, you CAN decide at the end of the year if you want to recharacterize the entire conversion, if, for example, the value went down, while keeping the conversion if the account, as a whole, went up.

Of course, there is no guarantee that even if the account is up at the end of 2002, it couldn't go down later. This happened to a lot of people who converted in 1998.

[John G]

I am not sure if Paul is talking about a reversing a Roth conversion or reclassifying a current tax year contribution.

Concerning the later.....

It seems to me that there is an awful lot of running around time to get that done. Plus, you have no control as to the exact timing and markets can move around a lot in a few weeks... timing is up to the back room of the custodian. You also have check to make sure it actually gets done by the custodian. If you are pushing around 2K, it seems to me that at some point the value of your time erodes away a possible benefit.

I am surprised that custodians don't establish some fees for these kinds of transactions which clearly must annoy the retirement dpt. of brokerages, mutual funds and banks.

If Paul is really talking about a Roth conversion..... Then you can un-do the deal if take timely action. Remember that you may not qualify for the conversion in a subsequent year: the rules may change, your filing status might change, Congress may pull the plug, etc. So, if the change in relative value is small you may just want to leave the conversion stand.

Final point, if the drop in value is a large percent.... you have a much bigger question you need to face. You don't want to do an Enron with your retirement money. A well diversified equity portfolio or equivilent mutual fund(s) or even an index fund will ussually get the job done if given time. You don't need to or want to be betting long shots in the stock market to get good results. Time, diversification and patience are all very good friends of the savy investor.