by Barry C. Picker, CPA/PFS, CFP
© 1999, Barry C. Picker
The following copyrighted article is available exclusively on the Roth IRA Web Site:
On October 14, 1999, one day before the deadline announced in IRS Announcement 99-57, the Internal Revenue Service issued Announcement 99-104, extending the time to recharacterize 1998 Roth conversions and other IRA contributions to December 31, 1999.
Unlike Announcement 99-57 which appears to be effective for all years, Announcement 99-104 specifically applies to only 1998 IRA transactions. However while the purpose is to provide relief to those taxpayers who may have made an improper Roth conversion or contribution, it applies to all taxpayers. Thus, even taxpayers who made a proper conversion to a Roth in 1998 now have until December 31, 1999 to change their mind. If the current downward trend of the stock market continues, more taxpayers might look to revisit their Roth conversions.
The provision also applies to any taxpayer who made a $2,000 annual contribution to either type of IRA and now decides it should have been made to the other type. For example, someone who made a $2,000 contribution to a traditional IRA which was not deductible, should clearly recharacterize this as a Roth contribution, if he or she is eligible for a Roth contribution.
All other rules of Announcement 99-57 remain the same, namely that the recharacterization must be accomplished via a trustee to trustee transfer, must include applicable income or loss, and an amended return must be filed prior to the expiration of the statute of limitations. However since most people who take advantage of this provision will be due a refund, the amended return should be filed sooner rather than later.
The Service also announced that they will be sending letters out to taxpayers who appear to have made either improper conversions or Roth contributions. Hopefully, in cases where the Service is correct, these letters will get to the taxpayers while there is still time to correct the error.
Still left unanswered is what happens to a taxpayer who converted to a Roth, and whose
modified adjusted gross income is increased above $100,000 as a result of an audit or some
other adjustment. The easiest solution would be for Congress to extend the deadline for
recharacterization of improper conversions (but not discretionary ones) to the expiration
of the statute of limitations. Stay tuned.
The Author:
Barry C. Picker is a Certified Public Accountant with the Personal Financial Specialist
designation, and is a Certified Financial Planner licensee. He runs his own accounting and
financial planning firm located in Brooklyn, NY, and is also a member of the NYS Society
of CPAs Estate Planning Committee. He has taught seminars and written articles on tax
topics, and has been quoted in various publications. In addition, he is part of a panel
that answers tax questions on America Online at keyword:TaxLogic. He can be reached at
(718) 934-4300, or via E-Mail at BPickerCPA@cs.com.