Roth IRA Conversions/Tax Advantage

[Guest pollyvw]

I have Roth IRAs (some converted from Traditional and some which were originally Roths) dating back to Year 1 of the Roth provisions. TODAY (who knows about tomorrow?) they all have losses. Someone told me that I can convert them to take tax advantage of the losses. Will someone please explain the mechanics of this conversion. How do I get the loss to show up on my tax return and when will it do so?

[John G]

You can "recharacterize" any Roth conversion made during the calender year 2000. Since tax filings are finished for 1999 (now in Dec 2000), you can do nothing with the prior years.

The mechanics of recharacterization are relatively complex and if you think you want to do something for any conversion in this year you must act quickly. Your clock is ticking.

Also, if you think you wish to recharacterize and then convert to a Roth again.... be aware that the custodian controls the timing not the account holder. You may ask for an action and see it posted and priced two weeks later and the same again when you recreate your Roth.

Stock markets go up and down. Unless you qualify for this year and have a very large drop in value, recharacterizations may not be worth the hassle.

You may also not qualify in subsequent periods for Roth conversion. Talk to your tax preparer.