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Financial Planning / Tax Strategies
|Subject: Re: Converted Just One of Two IRAs to a Roth||Date: 6/26/2013 6:13 AM|
|Author: TMFPMarti||Number: 118749 of 121261|
The problem, if I understood what I was reading, is that the IRS considers lumps all IRA’s of an individual together when determining the tax on a conversion to a Roth. The accountant writing this warned that taxes on a partial conversion continue to be levied in succeeding years. It only just now occurred to me the previous reply that this should apply only where IRA’s contained deductible as well as nondeductible contributions, which mine do not.
You didn't quite understand it, but now I know what "it" is. When you have after-tax money in any traditional IRA account every distribution from any traditional IRA account is a mix of pre- and post-tax money. A conversion to Roth is a distribution subject to this rule. Even though you have made no pre-tax contributions to your traditional IRA accounts, we'll hope that they're worth more than the total of your after-tax contributions. Those earnings are pre-tax money, so you'll have to do the proportional calculation in Part I of Form 8606 should you do a conversion. The balance of your after-tax "basis" carries forward to the next year, but that's the only aspect that crosses years. There's no ongoing tax due from a conversion after the conversion year.
This is all academic for you and 2012 since you recharacterized your 2012 conversion. For planning purposes, if you want to do a 2013 conversion you calculate the taxable portion as shown in Part I of Form 8606. If you need some help with that or would like confirmation that you've done it right, just holler.
I was/am under the impression that had I transferred the money back to my IRA before April 15, 2013, I could have considered the conversion to the Roth as never having been made, and thus would not have had to recharacterize it and then pay more tax on the larger amount I had after the recharacterization when I converted it again to the Roth.
Well, we need to kill that impression. I don't think you realize that the effect of a recharacterization is that the conversion never happened. That's exactly what you wanted and is the way that you "transfer the money" back to your traditional IRA.
I tried all iterations of entries into TT and received the same response each time. The two TT reps I worked with were also
unable to plug in my figures without getting the same response. They were as frustrated as I still am.
Maybe I misunderstood you. I thought you said TT was calculating a penalty based on the conversion. If that's correct, please tell me the following:
1. What percentage of the gross conversion amount is the penalty?
2. What is the code in Box 7 of the 1099-R for the amount converted?
3. Is TT generating a Form 5329? If so, what Part of that form is it completing?
If TT isn't generating a penalty, exactly what is the TT problem?
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