Opportunity for an IRA Conversion Do-Over!

Added: 10/11/11�

Rookie Version Perfect for �beginners� & the �I am in Rush-ers�!

Did you convert a Regular IRA (Individual Retirement Account) to a Roth IRA retirement account in 2010?

What steps should I take?� There are only three things to do.� (we use the "only" word lightly)

(2)�� �Decide if the value has dropped enough to warrant an "Un-Do".� This "Un-Do" (technically called a �recharacterization� (sorry to get technical) needs to be completed by October 17th, so don�t delay!� Make sure it is a direct transfer back to the Regular IRA account to avoid major problems!

Have a general question or need some personalized help?�

Click here to contact Rockin� Finance�

Black Belt - Advanced Version Perfect for the �do-it-yourself-ers� or the �I need to know all the detail-ers� (Suggestion: Read Rookie Version first then get to the good stuff below!)

Tax free retirement income?� Sounds good right?� Yes, in 2010 many financial advisors and accountants touted the incredible benefits of converting your Regular IRA (a type of retirement account called Individual Retirement Account) into a Roth IRA (another type of individual retirement account).� They were right.� Although the two sound very similar, the way they are treated for taxes are very different.� Your retirement withdrawals from these accounts can be explained by using your state�s �Tax Free Day� that may occur just around the time school starts each year.� On tax free day, no sales tax is added to the clothes you purchase.� Well if your retirement money is in the Roth IRA, when you take it out in retirement, it is tax free!� So are all the earnings on the account!� This is what makes the Roth super amazing!

There is a catch. (You knew there�d be a catch didn�t you?)�

You need to get the money into this Roth IRA account so it can build up tax free!
How does money get into the Roth?� This happens in one of two ways:������������������������������������������������������������������������������� (1) make contributions during the year into the account if you are eligible or �
(2) convert your current existing retirement money that is in a Regular IRA account into the Roth IRA account.� When you convert from your IRA to the Roth, you need to include the value of what you transfer to the Roth into income.� You report this on your tax return and pay tax on the conversion.� OK, it makes sense, but here�s the catch part� In April when your accountant or financial planner included the value of the conversion on your tax return, the account value was much higher than it is today.� It�s now October and the roller coaster ride of the stock market may have taken a toll on your Roth.� But you included the higher amount from April into income.� That's not fair!

Could the IRS actually give me a do-over?� Yes, the IRS actually does give you the opportunity to "Un-Do" the conversion.

Why is this good?� You will get your tax money back if you chose to include it in your 2010 income, even if you already filed the 2010 tax return.� This "Un-Do" or recharacterization needs to be completed by October 17 (because October 15th is a Saturday in 2011).� You had the option when you filed your 2010 tax return to pay the tax by April when you filed the 2010 tax return, or you could have chosen to spread it out over two years on your 2011 and 2012 tax returns. �
But I wanted the money in the Roth because of the great benefits of tax free retirement income?� Yes, so after you do the "Un-Do," or recharacterization, you only need to wait 30 days to put the money back into the Roth.� No this is not a joke!� Just 30 days to wait.� You will basically be in the same holdings position (without 30 days worth of income or losses)!

Can I spread the tax over two years like I could when I did the conversion in 2010?� No�Aren�t there always some pluses and some minuses in everything.� The one disadvantage when you reconvert the money to the Roth in 2011 (after waiting the 30 days) you will need to pay the full tax bill due April 16, 2012 (April 15th falls on a Sunday in 2012).� 2010 was the only opportunity to delay payment and spread the tax due on the conversion over two years.

What steps should I take?� There are only three things to do.� (we use the "only" word lightly)
(1) If you did a conversion in 2010 from a Regular IRA to a Roth IRA, check the value on the date you converted (probably around April) compared to the value today.� If the value has dropped, call your accountant, financial planner or Rockin� Finance�.
(2)�� �Decide if the value has dropped enough to warrant an "Un-Do" (recharacterization).� This needs to be completed by October 17th, so don�t delay!� Make sure it is a direct transfer back to the Regular IRA account to avoid major problems.
(3)�� �Once you "Un-do" (recharacterize) the transaction, contact your accountant to file an amended tax return.� If you self-prepare and need help, don�t hesitate to contact Rockin� Finance�.� We�ll send you step-by-step instructions to guide you to prepare your amended return.�� Most taxpayers have three years from the day the original return was filed, but check with your advisor to see if it should be filed sooner.�� You will get money back if you chose to pick up the conversion in your 2010 income. (Remember you may have chosen to spread out the tax payments over 2011 and 2012)��

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Have a general question or need some personalized help?�

Click here to contact Rockin� Finance�!

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