Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Roth Conversion - affecting other credits
Old 03-18-2006, 01:55 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,284
Roth Conversion - affecting other credits

Here's my plight. I thought I did a good job of planning and in Nov, 2005 converted just enough of my Trad IRA to a Roth to hit the top of the 15% bracket ($36,000 conversion) for tax year 2005.

Now, I'm doing my real taxes, using TurboTax and found I can take a credit for my son's college tuition. The catch is that I hit some income limits so the credit is reduced from a max of $2000 down to $752 (I'm giving up $1248 in credits). If I reduce my Roth conversion (I guess I need to do a recharacterization?) by $12,600, I can get the full $2000 credit. I don't think it makes sense to take the hit on the credit in addition to the ~15% tax hit on the Roth conversion.


I've researched it some (but you people provide answers I understand!), and here are my questions:

A) Can I re-characterize for this reason? I see examples for rechar because you *cannot* do it (>$100K income), but not because you do not *want to*.

B) If I understand, I can do this in 2006 for 2005 (before 4/17/06), but I probably won't get a form from Fidelity before then. So I do the paperwork with them and just fill out the numbers on a 1099-R in TurboTax?

TIA for any help, the government sure does not make this easy for us with all the iterative tax implications (arghhhh!) - ERD50
__________________

__________________
ERD50 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Roth Conversion - affecting other credits
Old 03-18-2006, 02:07 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,284
Re: Roth Conversion - affecting other credits

I found part of my answer at Fidelity:


Recharacterization

Recharacterization lets you change your mind about the type of IRA to which you make your annual contribution. You can also recharacterize assets converted to a Roth IRA back to a Traditional IRA. You can recharacterize for any reason, not just due to an error or ineligibility.


-ERD50
__________________

__________________
ERD50 is offline   Reply With Quote
Re: Roth Conversion - affecting other credits
Old 03-18-2006, 05:02 PM   #3
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Re: Roth Conversion - affecting other credits

Quote:
Originally Posted by ERD50
B) If I understand, I can do this in 2006 for 2005 (before 4/17/06), but I probably won't get a form from Fidelity before then.
Phew, it's hard to believe (but possible) that the IRS would give us an extra three months to do this.

You might want to check the deadline, and the entire recharacterization process, in IRS Pub 590. We've applied logic to these situations before and found out that we would have been in trouble.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Roth Conversion - affecting other credits
Old 03-18-2006, 09:06 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,284
Re: Roth Conversion - affecting other credits

Quote:
Originally Posted by Nords
Phew, it's hard to believe (but possible) that the IRS would give us an extra three months to do this.
Thanks, between pub590 and TTax I think I got through all the lingo, and TTax seemed to take it OK.

Yes, you do have until the file date (at least, maybe even extension date, but that was not clear) to re-characterize any conversion (or contribution for that matter). The logic behind it is (uh-oh - here comes 'logic' and 'taxes' in the same paragraph) that you could do a conversion or contribution anytime in the year, then earn more money than expected late in the year. That could push you past the limits. So they allow you to back it out. According to Fidelity, you don't need a reason to back it out.

But I need to triple check all this. Once you 'unconvert' you can't 'reconvert' until next year. I've got to get it right this time, and I need to get the xfer done at Fidelity in time to file. Fun,fun,fun.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Re: Roth Conversion - affecting other credits
Old 03-19-2006, 07:08 AM   #5
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: Roth Conversion - affecting other credits

FWIW, you only have until the initial file date, you can't use an extension to convert later.

Publication 590 is one of my favorites. Worth a bookmark.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Roth Conversion Tax halo FIRECalc support 1 03-31-2007 09:07 AM
Roth Conversion Tax halo FIRE and Money 35 11-28-2006 01:00 PM
Roth Conversion Tax Part 2 halo FIRE and Money 0 11-22-2006 12:29 PM
Roth conversion question REWahoo FIRE and Money 14 10-07-2006 08:48 AM
Not eligible for Roth IRA - conversion? Lusitan FIRE and Money 9 02-23-2006 11:00 AM

 

 
All times are GMT -6. The time now is 11:51 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.