The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Trad to Roth Conversions and Recharacterizations||Date: 3/15/2013 1:56 AM|
|Author: caretaker2||Number: 118058 of 122472|
Phil provided the following strategy to another poster:
>>Let's say you're going to invest in five stocks. You buy them in the traditional IRA then convert into five Roth accounts, one for each stock. Come 10/1/2013 you see that three are winners and two are big losers. You can recharacterize only the losers, thus eliminating the "phantom" income from only those conversions. If everything's in one account you can't isolate just the loss for recharacterization.<<
I have a few questions about how this works, please.
1a. Do each of the stocks have to be bought in the traditional IRA first? (no transferring cash to the various Roth accounts and then buying the stock from within the Roth account?)
b. If, after you've moved the stock to the Roth IRA, you sell that stock and replace it with another, are you out of luck if that replacement stock turns out to be a dog? (I'm more of a buy and hold person, but knowing my options is comforting.)
2. Will there be a problem if the Roth IRA you want to recharacterize is held in an institution that is different from where the trad IRA was held? (The original person asking the question wanted to move money directly from a 527 account to the Roth IRA at another institution and was being told by the receiving institution that he had to move it to a Trad IRA at the new institution first. If the answer to my question is yes, doing that 'extra paperwork' step may be very much to his advantage.) I ask as I vaguely recall being told (the only time I tried to recharacterize) that I couldn't because different institutions were involved and so the money (cash, no stock involved) couldn't be 'put back'.
3. Phil in a later post, said oops, it's already 2013, make that 10/1/2014. So how does the timeline work? When is the earliest / latest in the tax year you can convert a traditional IRA to a Roth? And when is the latest you can recharacterize it -- is it specifically Oct 1 of the following year or is it a number of months after conversion or is it based on something else entirely?
4. Moving the stock out of your trad IRA and into the Roth as soon as possible after buying it is key to this strategy, yes?
Are there any advantages to buying the stocks and making the conversions as early as allowed in the year as opposed to as late as possible in the year? such as more time to see how the investment is going?? (Or vice versa???)
Or should the timing just depend on whenever you think there's a good entry point for the stock you want to buy?
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