Sep 1, 2011 12:00 PM

A deadline for recharacterizing contributions is fast approaching, so advisors need to help their clients decide now whether taking that step is a good idea

By Michael J. Jones

Last year — 2010 — was the first year tax-deferred individual retirement accounts could be converted into tax-free Roth IRAs without having to worry about exceeding adjusted gross income (AGI) limits. Those who made the leap from a traditional IRA to a Roth IRA were betting that paying the tax now would be a small price to pay for tax-free returns and tax-free distributions of those returns for themselves and for their heirs, for many years into the future. They could also make regular Roth IRA contributions of after-tax dollars if they didn't exceed AGI limits. But these are difficult times. No doubt some Roth IRA investments went south instead of north, causing the luster to dull. Disenchantment can descend to murderous intent. Conversely, those who made regular IRA contributions may have seen their investments do well and are now wishing they had contributed to a Roth IRA instead. What's a taxpayer to do?

Help is near. Your clients have until Oct. 17, 2011 to “recharacterize” contributions to Roth IRAs as contributions to traditional IRAs or vice versa. This will transform a contribution that was made to one type of IRA (Roth or traditional) into a contribution to the other type, effective as of the date of the original contribution. A recharacterization is a direct trustee-to-trustee transfer — and only a trustee-to-trustee transfer will work — from one type of IRA to another. Amounts recharacterized must be accompanied by income attributable to the contribution, from the date of contribution through the date of recharacterization.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

Poll

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

Click here to download the 2011 Trust Glossary

50 Years Ago This Month

Click here to read the issue.

50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

Click here to view the most up to date guide (September 2011)

Press Releases