Some IRA terms you should know

Tax Tip of the Week
September 7, 2009

Conversion, recharacterization, reconversion - when you want to make changes to your IRA, it may seem as though you need to learn a foreign language. But the best way to avoid penalties is to know the right term for the action you intend to take.

Here's a review:

Conversion.

Are you planning to move assets from your traditional IRA, SEP, or SIMPLE to a Roth? A conversion is a taxable distribution from one type of account to another.

To be eligible to make a conversion in 2009, your modified adjusted gross income must be less than $100,000. There's no income limit in 2010.

Recharacterization.

What if you've already completed a conversion and you're having second thoughts? A recharacterization lets you change your mind, without penalty.

In a recharacterization, you move the assets - along with the income earned on them - back to the original IRA.

You can also recharacterize contributions between IRAs. For instance, if you contribute to a Roth, you can switch the contribution to your traditional IRA. Just remember the maximum amount of combined contributions is $5,000 for 2009 ($6,000 when you're over age 50).

Reconversion.

A reconversion allows you to have second thoughts about your second thoughts. After you convert (say, a traditional IRA to a Roth), then recharacterize (from the Roth back to the traditional IRA), you can return those assets to the Roth (reconvert).

Recharacterizations and reconversions must be completed within specific time frames. Please contact our office for more information about making changes to your IRAs.

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E-Mail us at: qa@ClevelandSeniors.Com