Cash Flow Planning for Life - Helping you reach your personal & professional financial goals.

Cash Flow Planning for Life

Helping you reach your personal & professional financial goals.

If you switch to a Roth IRA early in 2010…

…you’re allowed the maximum benefit and still reserve the right to change your mind – by recharacterizing your Roth conversion.

Let’s walk through it —

Convert a $100,000 Traditional IRA to a Roth IRA in January 2010, in April 2011 review your account with your financial advisor.

Did the account increase or decrease in total value?

Also, where do you and your financial advisor see the market heading between April 2011 and October 2011?

One scenario:  In April 2011 account is up 10% or account value is $110,000 and you believe the market could retreat in the next 6 months, what to do?

First; you will decide on paying tax in 2010 or spread the tax due over 2011 and 2012 tax years.

Second; once this decision is made, you will need to decide whether to extend your 2010 tax return and wait until October 15, 2011 to file the return.  If you elect to pay the tax on the 2010 return and extend, compute the tax due on the conversion and pay it with the extension.  In early October 2011 review your account again with your financial advisor, if account is still positive (> $100,000) file your 2010 return.

If the account has turned negative (< $100,000) you can then re-characterize the Roth IRA back to a Traditional IRA, file your 2010 return and request your extension payment back.  Look to convert again in 2012.

There are a number of options you will have over that 21 month period (January 2010 and October 2011), review them all with your tax and financial advisor.

If you have any questions, comments or concerns about Roth IRA’s, or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688.

– Mark


This information is based on facts, assumptions and representations as stated and authorities that are subject to change.  We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER:  The information within this post is for informational and educational purposes only and is not tax advice and should not be used as such.  The facts of each individual situation can have significantly different outcomes when applying tax law.  The hiring of a CPA is an important decision not to be based solely on advertisements.

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