Roth [Conversion] Deadline

[SarahShaw]

I'd like to characterize funds from my conventional IRA to a Roth IRA and have the conversion be a taxable event for my 2012 taxes. Is December 31, 2012 the deadline to do that, or can it wait up until the time that I file my taxes (probably April 15, 2013)?

[Penguin]

Almost all your IRA questions are answered in pub 590.

Income. You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA.

If you withdraw the money from your IRA in 2012, you pay tax in 2012.

[SarahShaw]

Almost all your IRA questions are answered in pub 590.

Income. You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA.

If you withdraw the money from your IRA in 2012, you pay tax in 2012.

Suppose you withdraw it December 31, 2012 from a conventional IRA and deposit it into a Roth IRA in January 2013 and are younger than 59.5 yrs old. Then would it be a taxable event in 2012 and still free from penalties since it ultimately rolled into a Roth?

[Penguin]

Pub 590 says you have 60 days to make the rollover.

Allowable conversions. You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply.

[Alan S.]

Yes, you have 60 days to complete an indirect rollover including a Roth conversion. For current tax purposes the distribution will be taxable in 2012 because the 1099R for the distribution would be a 2012 1099R.

HOWEVER, your conversion would actually be completed in 2013 and the Roth custodian will issue a 5498 showing a 2013 conversion contribution. For any 5 year holding requirement for this conversion, the 5 year period starts 1/1/2013, not 1/1/2012. This means that you have an extra year to wait to avoid the 10% penalty if you need to withdraw the conversion from the Roth IRA before age 59.5. And if this conversion is your first Roth contribution of any type, the 5 year holding period for the Roth to become qualified (along with reaching 59.5), will also start in 2013 instead of 2012.

Regular Roth contributions can be made as late as 4/15 for the prior year, but conversions are not eligible for this and follow the above rules.

[LadyGeek]

I updated the thread title from "Roth Recharatierization Deadline" to "Roth [Conversion] Deadline" as the deadline date for recharacterization is different than the deadline date for conversion.

See: Publication 590 (2011), Individual Retirement Arrangements (IRAs) (October 15, under Worksheet 1.3. Example - illustrated)