Can I still recharacterize my roth ira back to a regular ira for tax y

[Guest mattwoi]

I havn't filed my 1999 tax return yet.I converted my traditional ira to a roth ira in 1998 with a 4 year payout.

My question is,can i still recharacterize my roth ira back to a traditional ira for tax years 1999 and 2000 or am i locked in to pay taxes on the original ira conversion?

[Appleby]

You mentioned 1998 and 1999, not sure which you are referring to.

In any instance, if you still have a filing extension for the tax year you are referring to ( I've never seen an extension this long), then you can recharacterize.

[John G]

You may be able to recharacterize if you were not eligible in 1998 for the conversion if you act immediately before the IRS contacts you. But if you just want to change the conversion because of other reasons you can not. The deadline has long passed.

But... you seem to have bigger problems in that you have not filed your 1999 tax return which is way overdue. Why? I would imagine that you do not have a tax preparer or accountant. Time to get one and get your financial affairs in order.

[Appleby]

Originally posted by John G

You may be able to recharacterize if you were not eligible in 1998 for the conversion if you act immediately before the IRS contacts you.  But if you just want to change the conversion because of other reasons you can not.  The deadline has long passed.

But... you seem to have bigger problems in that you have not filed your 1999 tax return which is way overdue.  Why?  I would imagine that you do not have a tax preparer or accountant.  Time to get one and get your financial affairs in order.

John, I disagree with your stance on the recharacterization deadline issue.

The IRS is very clear on this. The deadline to recharacterize is Tax filing deadline, plus extensions. Individuals who either file their tax return or filed for an extension by their tax filing deadline, (usually April 15), receives an automatic 6-months extension, which is until October 15.

There was an exception made for 1998 conversions, in which individuals received until December 31 of 1999 to recharacterize their 1998 conversions.

There have been instances where individuals realized they were not eligible for their 1998 conversions, long after the December 31,1999 deadline. The IRS made an exception for some of these individuals and allowed them to recharacterize.

If someone chooses to recharacterize, after the IRS stated deadline, without the IRSs permission, they run the risk of the recharacterization being disallowed by the IRS. To be sure, such an individual must contact the IRS, in writing, for permission.

[John G]

Appleby:

We are not in disagreement. I was refering to exactly the circumstances that you elaborated. The IRS has allowed tax payers to correct mistakes, probably because of the confusion surrounding the first year of the Roth program when many tax preparers, accountants and citizens were making mistakes. Apparently, these corrections have only been allowed when the taxpayer brings it to the IRS attention first. I did not think I was suggesting unilateral action by the taxpayer. I thought my statement "The deadline has long past" was pretty clear.

This individual has lost control of his financial records and reporting and is unlikely to get a sympathetic response from the IRS. I suspect that the desire to recharacterize is more likely due to the market decline and absolutely would NOT be allowed.

[Appleby]

I though that what's you meant- I should have positioned my response differently. I've seen many of your responses to similar issues and it is evident that you are very knowledgeable about retirement plans. It's always best to ensure that matters such as these are very clear, to prevent someone who is not as knowledgeable from misinterpreting our responses.

Keep us the good work John G

[Guest mattwoi]

so what you are saying is that i missed the deadline to recharacterize my ira for tax year 1999 and have until october of this year to recharacterize my ira for tax year 2000.

The second point that i'm unclear on is that i did in fact recharacterize my regular ira in 1998 and in doing so spread out my tax liability over 4 years.Since the market has gone down quite a bit and in doing so diminished the value of my roth below the level that it was when i first recharacterized it in 1998,i would be paying taxes on retirement money that is no longer there.my question is,can i still recharacterize my roth ira or am i bound to still pay my tax liability on the original amount converted in 1998?

[Appleby]

mattwoi,

If you recharacterized your 1998 conversion, then you should not be paying taxes on this 1998 conversion. A recharacterization of a conversion makes the conversion null and void. There would be nothing to spread over the 4-years because you 'reversed' the transaction

[John G]

Originally posted by mattwoi

so what you are saying is that i missed the deadline to recharacterize my ira for tax year 1999 and have until october of this year to recharacterize my ira for tax year 2000.

The second point that i'm unclear on is that i did in fact recharacterize my regular ira in 1998 and in doing so spread out my tax liability over 4 years.Since the market has gone down quite a bit....

Whoa!

You are making some confusing statements about your situation. I am going to attempt to answer your questions, but I will make some assumptions about your actual facts.

When you switch an IRA to a ROTH it is called a "conversion". If you elect to reverse this transaction, it is called a "recharacterization". It sounds like you did a 1998 conversion and elected to spread out the tax over four years... you said you did a recharacterization and 4 year spread and that is apples/oranges. From your prior statements, it is not clear that you have any 2000 transaction that can be recharacterized.

Tax payers that made a conversion in 1998 had an option to pay the taxes due over 4 years. This applied only in 1998. Note, these conversion were booked completely in 1998, just the taxes owed are spread out. The deadline for reconverting any Roth from 1998 has long passed. If the 1998 conversion was in error you have a chance to go to the IRS to request a correction.

What you can NOT now do is reconvert 1/4 or 1/2 of the 1998 conversion. Do not confuse the 4 year tax payment with a 4 part conversion. The entire conversion in 1998 is purely a 1998 conversion. You can NOT change a 1998 transaction because the market is down, the deadline has long passed.

You are clearly confused about these transactions and also have a major problem in failing to make timely tax filings. Please take my advice and go see an accountant ASAP and get your financial papers in order. Conversions and recharacterizations are complicated transactions and you should have the guideance of a professional. You run a major risk of incuring fines or having transactions ruled illegal.

[Guest AFRICA6796]

Well said John G.

From what I have seen and heard , most CPA would need the assistance of a retirement plans specialist to assist them with this.

Very few CPA, one of which is Barry Picker ( he writes for the Roth IRA website ), have a thorough understanding of the technical aspects of the IRA rules and and would therefore be able to apply it to an individual's tax filing.

At the firm that I work for, I take from CPA several time daily- they usually have a hard time understanding tehse rules