Only 7 Days Left to Save on Taxes on Your Roth Conversions
We all know and felt the crash of every world market last year. It was a complete financial disaster. Many clients did a Roth conversion only to see their account balances decimated by the market free fall, and huge tax bills looming on values that no longer exist. For those of you who fall under this category the government has implemented a great tax break that will allow you to recharacterize your Roth accounts and eliminate the tax liability on the lost account value.
For example say that in 2008 you converted $100,000 into a Roth account at a 25% tax rate, which generates a tax bill of $25,000. The value of the account today is only $40,000 leaving you with $60,000, that no longer exists, that you are required to pay taxes on. Fortunately with the tax code break for 2008 you can now recharacterize (convert) your Roth account back into an IRA account an the funds are treated as though they never left the IRA account. There is only one problem, the deadline to complete this transaction October 15th, 2009.
If you recharacterize your Roth back to an IRA or 401k account the funds only need to stay in the new account for 31 days before they can be transferred back to a new Roth account. The conversion has to be done as a trustee-to-trustee transfer.
Here are few key points to consider:
1) Type of transfer and how much. The original amount has to be transferred back to an IRA or 401k account regardless of the current value of the funds that were transferred.
2) The date in which the retirement funds were transferred to the Roth account.
3) It doesn't matter how many shares or what type of assets were reconverted they all qualify for the recharacterization.
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