Friday, October 21, 2011

When Can I Reconvert Recharacterized IRA Funds?

Now that the time to recharacterize a 2010 Roth conversion has passed, the next question many taxpayers are asking is, “When can I reconvert those funds?” 

The tax code says you can reconvert more than 30 days after your reconversion or in the following year - whichever is later. Here is what that means in English. If you converted in 2010 and recharacterized on October 12, 2011, then you must wait 30 days to reconvert - to be safe you can reconvert on November 13, 2011.

If you converted in 2011 and recharacterized in 2011, then you must wait until 2012 (the following year) to reconvert. Essentially, you can only convert the same funds once a year. In no case can you reconvert in less than 30 days. If you convert in 2011 and recharacterize on December 15, 2011, then you must wait 30 days - until January 16, 2012 - to reconvert.

Also keep in mind that any reconversion done in 2011 or 2012 is included in your income for that year. The option to defer the income tax was for 2010 conversions only. Don’t miss the opportunity to convert or reconvert to a Roth IRA at today’s historically low tax rates. Once in the Roth IRA it will grow tax free forever. Moving your money from taxable territory to tax-free territory is never a bad thing!

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
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