Any way to split 2010 ROTH conversion taxes over 3 years?
Hello,
I converted 2 separate IRAs into ROTH IRAs in 2010. I realized that I needed to recharacterize one of the two ROTHs back to a regular IRA, but I prograstinated and I did not fax the recharacterization request to the broker/custodian until the afternoon of the final deadline and they did not process the recharacterization request. (I asked a separate question about the situation with the recharacterization request).
Is there any way to pay taxes for one of the two ROTH conversions for tax year 2010 and pay taxes for the second ROTH conversion for tax years 2011 and 2012. I am single, so I cannot file separately and put one on my wife’s return and the other one on my own return.
Do I have any options? Based on the answers I have gotten from the IRS 800 number and based on how the forms appear to be written, it appears clear that one must elect to have ALL 2010 conversions taxed either for tax year 2010 or tax years 2011 and 2012.
Thank you very much!
Permalink Submitted by mk foss on Fri, 2012-04-20 16:57
The extended due date for 2010 returns last October was the last day to recharacterize and the last day to decide to pay tax on ALL conversions with the 2010 returns or use the default method. The default method was to report half the income with the 2011 return and half with the 2012 return. At this point, there’s no choice left. A withdrawal from the Roth in 2011 could have accelerated some of the income reproting into 2011 but that choice is also gone.
Permalink Submitted by John Smith on Fri, 2012-04-20 18:42
[quote=”[email protected]“]The extended due date for 2010 returns last October was the last day to recharacterize and the last day to decide to pay tax on ALL conversions with the 2010 returns or use the default method. The default method was to report half the income with the 2011 return and half with the 2012 return. At this point, there’s no choice left. A withdrawal from the Roth in 2011 could have accelerated some of the income reproting into 2011 but that choice is also gone.[/quote]
Thank you for your reply. So even if I were to somehow (it sounds that it”s impposible to do) were able to get the recharacterization processed, by now I would still be stuck with an equal split between 2011 and 2012 as my only option?
Permalink Submitted by John Smith on Fri, 2012-04-20 18:46
Does anyone know what would happen if instead of the day of the deadline, a recharacterization request was recived with plenty of time, say 1 full week before the deadline, and the broker for some reason still did not process the recharacterization and the IRA owner did not notice the error before the deadline or even maybe even received an erroneous message indicating that the recharacterization had been performed? Would the taxpayer have any way to appal to get the recharacterization processed after the deadline?
Permalink Submitted by Alan Spross on Fri, 2012-04-20 19:57
Not unless the error was 100% broker negligence.
You could apply to the IRS for a private letter ruling allowing an extension of the October deadline, but to have any chance of success you would probably have to show that the original conversion never should have occurred due to someone’s error. There requests are expensive and you would only have a chance under much more unusual circumstances than you mentioned.
Has this conversion lost money? Did you have a Roth IRA prior to this conversion that you could tap to help pay the tax bill?
Permalink Submitted by John Smith on Fri, 2012-04-20 20:30
[quote=”[email protected]“]Not unless the error was 100% broker negligence.
You could apply to the IRS for a private letter ruling allowing an extension of the October deadline, but to have any chance of success you would probably have to show that the original conversion never should have occurred due to someone’s error. There requests are expensive and you would only have a chance under much more unusual circumstances than you mentioned.
Has this conversion lost money? Did you have a Roth IRA prior to this conversion that you could tap to help pay the tax bill?[/quote]
Thank you for your reply.
Yeah, in this case it would be a stretch to call it broker negligence, especially 100%.
The orginal conversion (regular IRA to ROTH) should never have occurred due to [b]MY[/b] error. Does that count? 😀
The reason why this is a problem is that due to enemployment and large amount of mortgate interest reduction, I would have had a good amount of “head room” in tax year 2010 against the taxes from one conversion, but not nearly enough for both.
I do have on earlier ROTH that has an after taxes basis that is older than 5 years (I think I saw somewhere that 5 years matters?) that I could withdraw if I ablosutely have to do so in order to pay the taxes.
Permalink Submitted by Clyde Wolf on Sat, 2012-04-21 23:10
You can take a distribution of your annual contributions from your “earlier” ROTH IRA at any time tax and penalty free and use it for any purpose.
Distributions from a ROTH IRA come out in an ordered sequence.
– First to be distributed is our annual contributions, tax and penalty free.
– Second to be distributed is our Conversion amounts, tax free but if less than 5 years since Conversion the 10% penalty will apply.
– Last to be be distributed is gains, unless it is a qualified distribution taxes and penalty will apply.
There are several exceptions that can be applied to remove the 10% penalty, see IRS Pub 590 Individual Retirement Arrangements, page 64.
The IRS views all of our ROTH IRA accounts as one ROTH IRA.
This would allow you to take your early distribution from any ROTH account you want.