Reporting ineligible Roth contribution, conversion

[Guest Tom RedSox]

Is it neccessary to report an ineligible tax year 2000 Roth contribution and an ineligible tax year 2000 conversion from traditional to Roth (AGI = 115,000) if I plan to recharacterize them into a traditional IRA before Oct 15? I plan to file my 1040 by April 17 (I'm in Massachusetts; Patriots Day Monday).

[Guest Mary Ann]

I would suggest that you file an extension if you have not already recharacterized the Roth conversion and removed the Roth IRA contribution. Then, if you DO recharacterize the conversion you wil report both the distribution and the recharacterization on form 8606 when you eventually file. I would talk to the investment institution right away and get the contribution removed for year 2000. I believe you have up until the date of filing extension (October) to do this without penalty. But look that one up - I'm not for sure if it includes extension time.

If you absolutely want to file by the 17th, then you will need to include the conversion in your taxable income and pay any tax due. If you later recharacterize you would then amend your return.

[Appleby]

Tom RedSox,

The contribution no, the conversion yes. However, the conversion would be reported as non-taxable, if you recharacterize. If you file before you recharacterize, then it will be included in your AGI as taxable

Mary Ann is right, IRS Form 8606 if filed for recharacterizarions.

If you file today, or file for an extension today, you get an automatic 6 month extesnion -throught to October 16

[Guest Tom RedSox]

Thanks Mary Ann and Appleby!

Without time to recharacterize before the 17th, getting a filing extension is the solution; so obvious I didn't see it. If I filed by April 17, I think I had two choices:

1. Report my ineligible conversion on 8086 and pay taxes on it. Pay 6% penalty on the excess Roth contribution (Form 5329). Recharacterize both sometime before Oct. 16 (the contribution will be non-deductible), amend return, and wait for IRS to refund the penalty and tax.

2. Don't fill out 8086 or 5329, pay taxes as if I had never converted to or contribited to the Roth. Then recharacterize and amend... nothing? Maybe it avoids paying tax or penalty, but this seemed too sketchy.

So by recharacterizing first, then filing the 1040 and 8086 later, the IRS will be happy, yes? Thanks again, Tom