too much converted to Roth
I have a traditional IRA and a Roth. Since I had a renewable energy tax credit available to cover the taxes, I decided to move some of the IRA money into the Roth and did so late in Decemeber 2012. Now that I’ve prepared my taxes, I’ve realized that my initial estimate was a bit high and I moved more money into the Roth than will be covered by my credit. That said, now I’ve got a much bigger tax bill than I anticipated. Can I pull back some of the money that I have already moved into the Roth into the IRA without penalties? If so, what is the deadline for doing so?
Thanks in advance for any assistance you can offer!
Permalink Submitted by Deb Bear on Fri, 2013-03-15 18:03
One more thing related to this. In my tax calculations, does the IRA to Roth conversion amount need to be included in AMT calculations?
Permalink Submitted by Alan - IRA critic on Fri, 2013-03-15 18:21
You can do a full or partial recharacterization of a 2012 conversion up to 10/15/2013. There is no penalty, and on your 2012 return you would only show on Form 8606 that amount of your conversion that you retained. You would also include an explanatory statement including the date and amount of the original conversion, the portion of that conversion that you recharacterized and date and amount of the transfer back to your TIRA account. Normally, if you have not done the recharacterization by 4/15, you would file for an extension, pay what you think you will owe and then do the recharacterization by late Sept and file your return by 10/15. The conversion should be included in the AMT calculation because the AMT exclusion will apply to it.
Permalink Submitted by Deb Bear on Fri, 2013-03-15 20:25
Thanks for your assistance, Alan. I’ll be able to complete the recharacterization by 4/15, so that’s good. Can you please explain a bit more about the AMT exclusion applying to the conversion amount? Does this mean that my AMT will be reduced because the conversion amount is excluded? Any light you can shed in this darkness is much appreciated!
Permalink Submitted by Alan - IRA critic on Fri, 2013-03-15 20:44
AMT is complex, but basically you pay the higher of your regular tax or the AMT calculation. In figuring the AMT tax, there is an AMT exclusion amount that is used before calculating the AMT tax. That exclusion applies to your AMT income which includes the conversion income. If you convert beyond a certain amount the AMT exclusion does not eliminate as much income and the AMT could be triggered. The only way to be sure is to get a tax program and experiment with various conversion amounts or in your case retroactive conversion amounts to determine how much you need to recharacterize for 2012 (if any) to eliminate the AMT tax. Of course, reducing the conversion reduces your regular taxable income as well.
Permalink Submitted by Deb Bear on Fri, 2013-03-15 20:46
I REALLY APPRECIATE YOUR HELP WITH THIS!!!