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Author: ksypal Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Roth conversion mistake Date: 3/2/2000 10:44 PM
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Hello,
I was wondering if anyone out knows how I can straighten out a mistake when I file my 1998 taxes last year.

The mistake.....
When I converted my traditional IRA to Roth IRA at the end of 1998, I was under the impression that this was a non-taxed recharacterization and, accordingly, did not pay taxes on it. I now realize that I was supposed to pay, but I'm not sure how to handle the situation now. I'm assuming there's some form I can fill out and submit with my 1999 taxes.

Any advice would be most appreciated. Thanks.
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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30762 of 121095
Subject: Re: Roth conversion mistake Date: 3/2/2000 11:23 PM
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<< When I converted my traditional IRA to Roth IRA at the end of 1998, I was under the impression that this was a non-taxed recharacterization and, accordingly, did not pay taxes on it. I now realize that I was supposed to pay, but I'm not sure how to handle the situation now. I'm assuming there's some form I can fill out and submit with my 1999 taxes. >>

No, you can't fix it on the 1999 return. You have to amend your 1998 return. You'll need Form 1040X and Form 8606 to report the conversion. The 4-year spread will apply. Send the 1040X with the additional tax. IRS will bill you for the interest.

Be sure to include the 1/4 of the conversion income on your 1999 return.

Phil Marti
Tax Preparer

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30816 of 121095
Subject: Re: Roth conversion mistake Date: 3/3/2000 7:44 PM
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<<<< When I converted my traditional IRA to Roth IRA at the end of 1998, I was under the impression that this was a non-taxed recharacterization and, accordingly, did not pay taxes on it. I now realize that I was supposed to pay, but I'm not sure how to handle the situation now. I'm assuming there's some form I can fill out and submit with my 1999 taxes. >>

No, you can't fix it on the 1999 return. You have to amend your 1998 return. You'll need Form 1040X and Form 8606 to report the conversion. The 4-year spread will apply. Send the 1040X with the additional tax. IRS will bill you for the interest.>>

Just to amplify on what Phil has to say. As usual, he's right on. But there is still some confusion regarding the 4 year spread.

The 4 year spread election must made on Form 8606 on a timely filed return. If no election is made, the four-year rule will be deemed to be elected. An election, or deemed election, cannot be changed after the due date for the return for the first year of the income inclusion (including extensions).

So, now, even if you WANT to report the entire conversion income all in 1998, I believe that you are barred from doing so. Since your election was not made on Form 8606 on a timely filed return, you are now stuck with the 4 year spread...like it or not.

TMF Taxes
Roy


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Author: cotopop Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30843 of 121095
Subject: Re: Roth conversion mistake Date: 3/4/2000 1:03 AM
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<<When I converted my traditional IRA to Roth IRA at the end of 1998, I was under the
impression that this was a non-taxed recharacterization and, accordingly, did not pay taxes on it.
I now realize that I was supposed to pay, but I'm not sure how to handle the situation now. I'm
assuming there's some form I can fill out and submit with my 1999 taxes. >>

----------------------------------------------------
Roy,

Isn't there yet another option available to the taxpayer? I thought I read recently where IRS extended the time period for recharacterizations for tax year 1998 to October, 2000? I recall there was some thing like a 3 month window after the recharacterization before he could reconvert back to a Roth.

Am I reaming ?

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30876 of 121095
Subject: Re: Roth conversion mistake Date: 3/4/2000 3:55 PM
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<<Isn't there yet another option available to the taxpayer? I thought I read recently where IRS extended the time period for recharacterizations for tax year 1998 to October, 2000? I recall there was some thing like a 3 month window after the recharacterization before he could reconvert back to a Roth.>>

I know that I get a bit behind on my reading during this time of the year...but this is news to me.

The last date that I remember seeing regarding a recharacterization of a 1998 Roth IRA conversion was 12-31-99. I have not seen any "extensions" dealing with 1998 conversions. If anybody else has seen such an extension, please provide some authority or source documentation.

But any extension of time for a 1998 conversion is news to me.

TMF Taxes
Roy


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Author: ksypal Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31051 of 121095
Subject: Re: Roth conversion mistake Date: 3/6/2000 7:20 PM
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Thanks guys. Now, it's time for me to get to work.

Ken

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