Alan S. wrote:Typically, the Roth custodian will do the calculation. But if you want to determine the earnings allocation (NIA) yourself before requesting the recharacterization, the other rollover contributions you made to the Roth during the time your conversion was in the Roth are simply added to your opening balance as an adjustment, and the closing balance is the actual closing balance without adjustments. Here is a more user friendly explanation of the formula that should be used by the Roth custodian:
http://www.retirementdictionary.com/def ... butablenia
Why do you want to recharacterize the conversion. Did it turn out to be taxable?
bortery wrote:So if I add the other rollover contributions that were made to the Roth during the time the conversion was in the Roth to the Adjusted Opening Balance, do I also have to take into account any earnings that money gained in the Roth? In other words, if I made $10,000 in rollover contributions, do I add $10,000 to the Adjusted Opening Balance, or do I need to figure how much that $10,000 gained and add that (e.g. if it gained $500, would I then have to add $10,500 to the opening balance)?
Alan S. wrote:OK - your overall plan will work as long as you can roll your rollover IRA into your current plan before the end of 2013.
1) The earnings on your recharacterization of the 2012 conversion will be determined by the formula. The formula reflects the earnings generated on all assets in your Roth during the accumulation period of the conversion to be recharacterized. By adding these other Roth rollovers, the earnings % will usually be diluted since the other contributions had less time to generate earnings. However, any combination of results is possible because the formula is a simplifed approach rather than a totally equitable number. You might want to determine the amount of earnings to be transferred back to your TIRA before ordering the recharacterization. The larger the amount, the less attractive recharacterization is because you will be moving potentially tax free earnings into a pre tax IRA.
Alan S. wrote:2) Your taxable amount of 12k on the 15k conversion is correct if you followed the Form 8606 conversion taxation instructions.
Alan S. wrote:3) The amount you would ideally roll into your current 401k plan is your total TIRA value less your basis from non deductible contributions. You indicated 15k was your total basis. If your rollover IRA value is much less than your total TIRA value less 15k, you should roll the difference into the rollover IRA before doing the transfer, since that will make your conversion of the 15k totally tax free. Otherwise you would pay tax on the amount remaining in your IRA in excess of 15k. For a couple thousand, it's probably not worth doing this adjustment, and you also must be sure that your plan does NOT restrict incoming rollovers to only a rollover IRA as you would not want to mess with the rollover IRA and endanger acceptance by your current 401k.
Alan S. wrote:4) Re 2012 and prior tax reporting - be sure you reported each of those prior non deductible contributions on Form 8606 for the years made, as that is how basis must be documented with the IRS. Your 2012 8606 will show your 2012 non deductible contribution in Part I, and add your prior 10k of basis to get your total basis of 15k. The 8606 will NOT show your TIRA conversion if you recharacterize it, and it will not show your rollover of after tax 401k contributions either because they came directly from a non IRA plan. Do NOT confuse your conversion of 15k with the REGULAR IRA Contribution limit, as there is no limit to your conversion amount. The end result in the forms view for Ttax would be that line 16a would show your gross rollover from the after tax 401k contributions and 16b would show the taxable amount in Box 2a of the 1099R. 2a includes earnings on your contributions before you did the rollovers to your Roth. Line 15 will not have an entry if you recharacterize the 15k conversion, but you should add an explanatory statement to your return (Ttax has a screen to enter this) indicating the date and amount of your 15k conversion, and the date and amount of your conversion that was recharacterized, and also the value that transferred to the TIRA. You will get this info from your IRA activity statements after the recharacterization is done. With a correct statement, you will not refer to your recharacterization again on your 2013 return because your 1099R for the recharacterization will be coded to apply to 2012, not 2013.
Alan S. wrote:5) There are some other threads here that cover what you need to enter into TTax to get the above result correct. It can be tricky, so it's good to know what your 8606 and 1040 should look like after your input.
Epsilon Delta wrote:bortery wrote:So if I add the other rollover contributions that were made to the Roth during the time the conversion was in the Roth to the Adjusted Opening Balance, do I also have to take into account any earnings that money gained in the Roth? In other words, if I made $10,000 in rollover contributions, do I add $10,000 to the Adjusted Opening Balance, or do I need to figure how much that $10,000 gained and add that (e.g. if it gained $500, would I then have to add $10,500 to the opening balance)?
You add the actual value of the contriibution with no adjustment. It's a horrible, inelegant, approximation to economic reality; but that's what the IRS says to do. So don't think too hard, just follow the instructions.
Default User BR wrote:I went through this years ago at Wells Fargo. I just filled out the recharacterization form, then they calculated the share of earnings and asked me which funds to move over to the TIRA. I attached a written explanation of what happened to my tax forms. The IRS did not ask me any questions about it. As a "bonus" 2008-2009 happened, so when I went to convert it again I could keep more of the formerly taxable amount to put in the Roth.
Alan S. wrote:1) Good point. I should have clarified that line 15a should show the converted amount, but NOT 15b if you recharacterized the full conversion (per Form 8606 Inst).
2) The explanatory statement regarding the 2013 rollover of your pre tax TIRA balance to your 401k plan will provide assurance to the IRS that you actually did roll the amount to the 401k. You and the IRS will get a 1099R from VG for that rollover which is reported on line 15a and 0 on 15b with "rollover" entered next to 15b. However, unlike an IRA to IRA transfer, there is NO Form 5498 issued by the 401k plan and therefore nothing for the IRS to match up the 1099R to assure them you you did not cash out the money. This has resulted in alot of IRS inquiries, and the only way to minimize your chance of such as inquiry is to make a clear explanatory statement with your 2013 return that you DID roll the amount into your 401k plan. This should only be a one year reporting event since you will not be rolling funds into your 401k very frequently.
3) As noted in 1) above, you should still enter the converted amount that you recharacterized on line 15a only. Other than that all you need is the explanatory statement regarding the conversion and recharacterization. No 8606 is needed since you are recharacterizing the entire conversion.
4) Yes, that is correct. You will need the 8606 to report the 2013 conversion anyway, but will only report a 2013 non deductible contribution on the 8606 if you decide to make one.
NOTE: If you continue to make after tax contributions to your 401k and convert them, you will also get a 1099R for that. These go on line 16a and 16b rather than 15 (15 is for distributions FROM IRAs and 16 is for distributions from non IRA plans). For 2013, you will have at least TWO figures to add up on line 15 - first the rollover from your IRA to the 401k, and second the conversion of the remainder of your IRA to your Roth IRA.
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