Friday, October 15, 2010

Last Day to Recharacterize 2009 Roth Conversion

This is the moment! This is the day!

Today is a very significant day for retirement account owners. Today, Friday October 15, 2010, is the last day to recharacterize a 2009 Roth IRA conversion. What makes this day so special though is that it’s also the last deadline - ever - for someone who has to recharacterize. That’s because in 2009, if you had modified adjusted gross income (MAGI) over $100,000 or were married but filed a separate return from your spouse, you were not eligible to make a Roth conversion. Those restrictions were permanently removed beginning January 1st this year (2010) though, so going forward, no one will be ineligible to convert to a Roth IRA and have to recharacterize back to an IRA again.

Today is also the last day that a traditional IRA contribution or Roth IRA contribution can be recharacterized. What does that mean? Simply that if you made a contribution to one type of IRA last year, but have since changed your mind and want it to be in the opposite type of account, you choose to have it be treated as if it were originally made to the preferred type of account. Keep in mind that although there are no limits on traditional IRA contributions (only limits for whether or not they may be deducted), there were (and still are) Roth IRA contribution limits.
The “fun” doesn’t stop with recharacterizations though! Today is also the last day to remove a 2009 excess contribution from an IRA or Roth IRA. See, now doesn’t that sound exciting? Remember the contribution limit last year for IRAs was $5,000 - or $6,000 if you were 50 or older by the end of the year. So if you put more than that into all your IRAs (Roth and traditional) last year - and it didn’t come from a rollover - you’ve probably got an excess contribution which needs to be removed by today, along with its attributable earnings (or losses), in order to avoid a 6% excess contribution penalty. The 6% penalty would be assessed each year until you make the correction.

So be sure to make those last second IRA moves if you need to and have a happy, happy October 15th!

By IRA Technical Consultant Jeffrey Levine and Jared Trexler
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