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Traditional IRA Converted to Roth - AGI>$100G

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    Traditional IRA Converted to Roth - AGI>$100G

    Here's the scenario - and I appreciate any guidance you can provide me - New Client.

    My issues are 1) How to report on 1040, line 15, and 2) How and what to report on Form 8606

    Taxpayer, age 68, single, in March 2009 took $ 100,000 in distributions from traditional IRAs ( 2 $ 50,000 distributions from 2 different funds) with $ 30,000 ( 2 $ 15,000's) in FWT. So net it was $ 70,000. His total IRAs are worth almost $ 1 million. I spoke to him about converting at a late age - but he wants to do it - he's been doing it now for a few years. His argument is the tax rate will go up, so he wants to pay taxes now at a lower rate.
    Good part of the IRA total came from employer 401(k) -prior years - where he transferred in BOTH employer contributions PLUS his deferral. Yes I know - once he transferred into IRA he lost the advantage of his portion.

    His 2009 AGI WITHOUT even considering the $ 100,000 IRA distribution is $ 161,000 because in the fall of 2009 a corporate stock he owns (Wyeth was sold to Pfizer) he got a buyout distribution of $ 115,000. No sale of stock - just the cash distribution.

    I recognize that he must "recharacterize" it - meaning he must return it to the Traditional IRAs. But - how? He's only got $ 70,000 to work with - he must now come up with $ 30,000 of his own to transfer back? So he's got a $ 30,000 FWT credit on the 2009 return.

    Now - what sense does it make to physically transfer the money back - when in 2010 he can pull it back out unrestricted. Can't apply it to 2010's distribution?

    Anyway - my issues as I stated above are 1) 1040 proper reporting and 2) Form 8606 reporting.

    What a way to start tax season.
    Uncle Sam, CPA, EA. ARA, NTPI Fellow

    #2
    Traditional IRA Converted to Roth - AGI> $100G

    Just thought I'd bump this thread up again - to posts yet.

    Please - if anyone has a clue of what to do - I'd appreciate a response.
    Uncle Sam, CPA, EA. ARA, NTPI Fellow

    Comment


      #3
      It Depends

      It depends on whether he's recharacterizing $100,000 by the due date or only $70,000 with a $30,000 distribution or leaving a $100,000 distribution. My suggestion would be to recharacterize the full $100,000 by the due date including extension, coming up with the extra $30,000 if at all possible.

      Comment


        #4
        Converted IRA?

        But then, wouldn't he have to pay the excise penalty on $ 30G?
        Uncle Sam, CPA, EA. ARA, NTPI Fellow

        Comment


          #5
          Get it back to IRAs

          including the $30,000 and earnings? - you have very little damage and hopefully get the $30,000 back when you file the return.

          Comment


            #6
            Traditional IRA Converted to Roth AGI> $100G - 2009

            I want to thank all who responded to this post last year - February 2010.

            With the documents I attached to my copy of the return, including posts from this board, I just today, was able to squash in total a CP-2000 notice to my client received this week assessing the additional $ 70,000 of distribution------> $ 28,000 of additional tax including interest and penalties.

            Thanks ALSO to TMI for their Tax Book Deluxe for the handy useful explanations that I also copied from the book and kept attached to the return.

            All it took was some documents from client to prove recharacterization date took place prior to 1040 filing deadline and I had no problem convincing IRS of the "no additional tax due".
            Uncle Sam, CPA, EA. ARA, NTPI Fellow

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