December 18, 2009 12:00 am

Extension of Time to Recharacterize a Roth IRA

Usually, you have until October 15 of the year following the year to recharacterize Roth IRA conversion. Thus, if you convert a traditional IRA to a Roth IRA in April 2009, you have until October 15, 2010, to recharacterize the account. Recharacterization is desirable when the value of the account drops significantly after the conversion or when you learn that you are ineligible to have made the conversion because your modified adjusted gross income (MAGI) is more than $100,000, a current eligibility requirement. If the miss the October 15 deadline, the IRS may grant an extension of time to act.

In one case, a person converted her traditional IRA to a Roth IRA on the suggestion of her financial adviser. She obtained a filing extension but could not file by October 15 because she had not received various Schedule K-1s from entities in which she had an ownership interest. When she did receive them, she learned that her MAGI was more than $100,000. She requested relief from the IRS, which was granted. She could not control the issuance of the Schedule K-1s and did not know what they would contain. Her relief: an additional 60 days from the date of the issuance of the IRS relief.

Looking ahead: The need to obtain relief for situations such as this will largely disappear for two reasons:

  • Partnerships, trusts, and estates must now issue Schedule K-1s by September 15, giving taxpayers a month in which to file their returns and, where desirable, make recharacterizations.
  • The $100,000 MAGI eligibility requirement will be eliminated starting in 2010.

Letter Ruling 200950059

Tax Glossary

Tax deferral

Shifting income to a later year, such as where you defer taxable interest to the following year by purchasing a T-bill or savings certificate maturing after the end of the current year. Investments in qualified retirement plans provide tax deferral.

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