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2010 Roth Conversions - Time to Recharacterize?

Individuals who did Roth conversions in 2010 and took advantage of the opportunity to spread the income over 2011 and 2012 are now faced with the tax bill for income that must be included on their 2011 tax returns. Many are now having second thoughts or are having difficulty coming up with the funds to pay the tax.

Some are thinking that now is the time to recharacterize their 2010 conversion. Unfortunately, the time to do that has passed. You have until October 15th of the year after the conversion to recharacterize. That time frame was not changed if you deferred the tax on the conversion. It is a hard and fast deadline.

Can you get an extension of time from IRS? Yes, BUT, it must be done through the private letter ruling process AND the reason for the extension must be for circumstances beyond your control. Circumstances such as you submitted the paperwork to the company and it never got processed or you were in a coma for the last 18 months. This does not include things such as my account lost value or I lost my job and can’t pay the tax. Also, there is an IRS fee of $4,000 for a private letter ruling and you have no guarantee that it will be granted. For some individuals, it is going to come down to taking the funds from the Roth IRA to pay the income tax due.

-By Beverly DeVeny and Jared Trexler



Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

If a person makes contributions to an IRA then realizes they are over the income level to get a tax deduction, can they remove those contributions plus income if they haven’t filed their tax return for the year of the contributions?

Situation: $4,800 was contributed to an IRA in 2011. I am extending my tax filing so I have not filed Form 8606 for 2011. I filed the IRS Form 5498 showing the contributions.

If I can remove the contributions, what steps do I need to take?

Thanks for your help.