Recharacterize Roth conversion to stay under AGI threshold?

addition to below: in 2010, the $100K limitation goes away.

If your modified AGI (MAGI) is over $100k, conversion is not allowed. MAGI does not include the conversion amount, but does include Tuition and Fees deduction (add it back in).

-Mark Bole

My first post was swallowed up somewhere on its way.

What I said was, your MAGI under your scenario does not allow for a conversion, so no recharactization to worry about.

-Mark Bole

See below, you are contemplating something that isn't allowed.

If your modified AGI (MAGI) is over $100k, conversion is not allowed. MAGI does not include the conversion amount, but does include Tuition and Fees deduction (add it back in).

So, under your scenario no conversion, so no recharacterization either.

-Mark Bole

Mark: thanks for the reply. You are correct, and I overlooked that issue.

I am actually not making a Roth "conversion", since my wife has an inherited IRA - one for which we must take annual minimum distributions since my father-in-law was over 70.5 at time of death. My plan was to create my own "conversion" by simply taking a distribution of the entire IRA balance (around $8000) and at the same time contributing a similar amount to a Roth in my name and my wife's name. I have been thinking about this transaction as a "conversion" because that is what it is in substance, but it isn't actually a conversion in legal form. I am using this opportunity in 2009 to "convert" while my income is unusually low.

Since I cannot "undo" my 2009 IRA distribution in early 2010, I guess I will simply have to be very conservative on how much I distribute in

Please let me know if you see it differently, or if you see another angle to "manage" my AGI just under $130k.

Thanks.

You are describing a distribution from the Trad. IRA and a contribution to Roth in the same amounts and in the same tax year, involving both spouses. To be sure of what's allowed, what's excess, what's taxable, what's deductible, etc you really should work through the appropriate worksheets and forms.

You do have to be careful with terminology, as the rules for conversions and their recharacterizations are not identical to those for contributions and their recharacterizations or withdrawal (or at least, I feel pretty safe making that claim! ;-).

As you yourself said, "I cannot plan my AGI to the penny." What's your combined federal and state tax benefit from the extra $2K T&F deduction? Maybe $500? Plan your AGI to be below $130K by a comfortable margin, not "just barely". If you itemize, you can always make a charitable contribution or reasonable estimated state tax payment right up to the last day of the year.

Then, validate your assumptions sometime around mid-December, make last minute tweaks if necessary.

-Mark Bole

Cancel that, the above is irrelevant when computing AGI.

As an added note, Form 8606 will become your new friend.

-Mark Bole

Cancel that, the above is irrelevant when computing AGI.

As an added note, Form 8606 will become your new friend.

-Mark Bole