Recharacterized - how many?

[Guest Thenozz]

Sorry for the question, but I haven't been able to find any info on this topic. Situation: I have converted my Traditional IRA to Roth in 1999, and then recharactized it back to a Traditional IRA. Now, I think I might be under the MAGI of $100,000 for the year, and would like to convert back to a Roth. I was told if I'm over $100,000, I will be able to recharacterize back to an IRA next year. I'm afraid, however, that I've used my 1 recharactization.

I'm fairly sure I can convert to a Roth, but am uncertain whether I would be able to recharactize back to a traditional IRA if I'm over $100,000, thereby subjecting the conversion to penalties. Any help would be appreciated.

[Kathy]

I don't think the recharacterizations are limited, only the "reconversions." If you need to recharacterize again because you're ineligible you can. Furthermore, I think the main reason for limiting the number of times people recharacterize and then reconvert is to prevent people from continuously improving their tax situation each time the market changes.

Now, with that said, what are the new rules for reconverting? Must he wait until next year to do it again? If so, what a shame.

[BPickerCPA]

You can still do another conversion for 1999, and if you need to, you can always recharacterize that conversion also.

You can ALWAYS do a recharacterization. You will never be stuck in a conversion that is improper and causes penalties.

[Bruce Steiner]

Suppose you think your income will be under $100,000, and you convert to a Roth IRA. Then your return is audited and (after October 15 of the following year) you find out that your income was over $100,000. Can you still recharacterize back to a traditional IRA?

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Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL

[BPickerCPA]

[[Can you still recharacterize back to a traditional IRA?]]

Under current rules, not after Oct 15th. This is still the area of concern, inasmuch as it causes you to have no IRA of any type, not to mention early distribution penalty and excess contribution penalty.

[John G]

You need to list your income in two columns: $ where you can shift the date, and fixed date. Things that you can control include when you sell stocks. Selling any losses to offset gains. If you are self employed or have a small business, think about maximizing the use of Sec 179 expense for equipment purchases. You might also start a business which typically has first year losses. If you have a corporate position, see if you can have any bonuses shifted into January.

Hidden income issues include: capital gains and dividends from mutual funds, tax refunds, partnership income, etc.

If you think all is lost, then hope for some legislative relief. Some proposals have been floated to relax the income test on Roth conversions. They may not make it or may be vetoed, but there is a reasonable chance they could be inserted next year. Perhaps you ought to call your reps office and show your support.

[This message has been edited by John G (edited 09-10-1999).]

[Guest Thenozz]

Thank you very much for your replies. I appreciate it.