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Author: mkraft Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Dumping the '4-year spread' ? Date: 4/8/1999 10:16 AM
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If you find it disadvantageous to continue under the 4-yr. spread from a '98 ROTH conversion because of changes in your taxable income, can you reconvert selected amounts -- or, if necessary, the 'full' amount for the current year (based on the 4-yr. spread schedule') -- back to regular IRA or are you still obligated to continue under the 4-yr. 'contract'?

Thanks.
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9800 of 75383
Subject: Re: Dumping the '4-year spread' ? Date: 4/8/1999 5:26 PM
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Mkraft asks:

<<If you find it disadvantageous to continue under the 4-yr. spread from a '98 ROTH conversion because of changes in your taxable income, can you reconvert selected amounts -- or, if necessary, the 'full' amount for the current year (based on the 4-yr. spread schedule') -- back to regular IRA or are you still obligated to continue under the 4-yr. 'contract'?>>

If you wish to recharacterize that conversion as simply a rollover to another traditional IRA, then you must do so by April 15. Unless you have your Roth IRA at your local bank, I'll guarantee it will be nearly impossible for you to accomplish that feat on time. Most providers established April 1 as their internal deadlines for receiving such requests.

In your case and assuming you could get it done, you would have to talk the provider into recharacterizing just part of the conversion by transferring that amount and any earnings on that amount to a traditional IRA. That latter calculation will be resisted by the Roth custodian, which will add to your problem of meeting the deadline. For expediency, it would be best to recharacterize the whole thing, and have all the rollover money and earnings transferred to a traditional IRA. By doing so, you lose the four-year spread of income, so any future reconversion must be declared and taxed in the tax year it takes place.

Regards..Pixy


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Author: mkraft Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9844 of 75383
Subject: Re: Dumping the '4-year spread' ? Date: 4/10/1999 7:41 PM
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If you wish to recharacterize that conversion as simply a rollover to another traditional IRA, then you must do so by April 15. Unless you have your Roth IRA at your local bank, I'll guarantee it will be nearly impossible for you to accomplish that feat on time. Most providers established April 1 as their internal deadlines for receiving such requests.


I hope you're wrong about that. I haven't heard a peep, received anything in the mail or seen any mention at any website of a 'recharacterization' deadline. I'll know Monday.

In any event, I believe a filing extension would also extend the recharacterization deadline. That's my reading of the Form 8086 instructions.

However, in my post, I wasn't referring to recharacterizing for '98. I was referring to a change of heart at some point in the future: e.g., in 1999 or 2000 -- i.e.,. any year that's under the '4-year spread' contract.

Is there any flexibility at all for modifying the 'equal amounts' of additional income (based on the ROTH conversion) that have to be added to other regular income for each of the 4 years?

Thanks.



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Author: rjm1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9847 of 75383
Subject: Re: Dumping the '4-year spread' ? Date: 4/10/1999 8:43 PM
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I hope you're wrong about that. I haven't heard a
peep, received anything in the mail or seen any
mention at any website of a 'recharacterization'
deadline. I'll know Monday.


I think you have until 4/15, maybe after if you file an extension.

The reason for 4/15 is if you converted in 1998 and found out in 1999 that you were over the 100,000 cap you have to convert back before you file your return. Look at IRS pub 590 and see if that helps.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9855 of 75383
Subject: Re: Dumping the '4-year spread' ? Date: 4/11/1999 11:02 AM
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Mkraft writes:

<<I hope you're wrong about that. I haven't heard a peep, received anything in the mail or seen any mention at any website of a 'recharacterization' deadline. I'll know Monday.

In any event, I believe a filing extension would also extend the recharacterization deadline. That's my reading of the Form 8086 instructions.>>


The recharacterization must be complete by your filing due date with extensions. That's definitely a deadline. For most folks, the deadline for a recharacterization for 1998 would be April 15, 1999. OTOH, if you request an extension, the deadline for recharacterization would be August 16, 1999, for the first extension, and perhaps October 15, 1999, with a second.

<<However, in my post, I wasn't referring to recharacterizing for '98. I was referring to a change of heart at some point in the future: e.g., in 1999 or 2000 -- i.e.,. any year that's under the '4-year spread' contract.

Is there any flexibility at all for modifying the 'equal amounts' of additional income (based on the ROTH conversion) that have to be added to other regular income for each of the 4 years?>>


Sorry if I misunderstood the question. If at some point in the future you desire to "opt out" of the four-year spread of income, then you will be sadly out of luck. You either have to declare all the income in 1998 or spread it equally over the years 1998, 1999, 2000, and 2001. "The election is made on Form 8606 and cannot be made or changed after the due date (including extensions) for filing the 1998 Federal income tax return." (Source: Federal Register Vol. 63, No. 171, 26 CFR Part 1, Roth IRAs 63 FR 46937) Thus, if you want to opt out of the four-year spread, you must recharacterize or not use it all.

Regards..Pixy

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Author: mkraft Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9862 of 75383
Subject: Re: Dumping the '4-year spread' ? Date: 4/11/1999 2:31 PM
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<<< The recharacterization must be complete by your filing due date with extensions. That's definitely a deadline. >>>

By 'deadline' I was referring to the custodian deadlines you had referred to -- i.e., that I had not read or otherwise heard of any.

Anyway, I can't see why such deadlines would be imposed (other than perhaps requiring them to be requested before April 15 itself). Though I don't know what recharacterization involves, unless you're trying to split up individual securities (between trad. IRA and ROTH) it would seem to me to be little more than a journal transfer (by the brokerages, etc.). After all, the custodians aren't the ones who have to recompute anything -- I am.

In any event, since a filing extension also extends the recharacterization deadline, that should solve the problem if I do end up getting any flak from the brokerage.

<<< income in 1998 or spread it equally over the years 1998, 1999, 2000, and 2001. "The election is made on Form 8606 and cannot be made or changed after the due date (including extensions) for filing the 1998 Federal income tax return." (Source: Federal Register Vol. 63, No. 171, 26 CFR >>>

The quoted section states that the *election* (to take the 4-yr. spread or not) can't be changed. It doesn't specifically say that any adjustments to the amounts subject to the '4-year spread' can't be made.

However, in the absence of anything stating that such modifications *can* be made, I'll assume they can't be.

Thanks for your reply.



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