Too late for IRA conversion
I know that you can make a contribution to an IRA or Roth IRA for 2006 up until taxes are due in 2007. But can you also make a conversion contribution from an IRA to a Roth IRA for 2006 up until taxes are due in 2007?
Also, is there a limit on the amount of money you can put in the conversion contribution? I am retired and should have converted money from IRA to Roth in 2006 to increase my reportable income for 2006 taxes. I failed to convert money to the Roth by the end of the year. As a result, I am going to have tax deductions for 2006 that will be wasted because I won't have enough reportable income to use all of them. Is there any way out of this problem?
In order to have made a conversion from traditional IRA funds
to a Roth IRA, you would have needed to withdraw the funds prior to the end of
2006 and made the rollover into a Roth within 60 days. Converting funds to a Roth
IRA involves the individual including in income the amount transferred from a
traditional IRA to a Roth IRA.
When an individual has deductions in excess of income
for the year, this income inclusion does not result in any additional
taxes. Hence, the Roth conversion makes sense. Unfortunately you
are too late to utilize your excess deductions for 2006 and most
likely those deductions, unless business-related, will be lost forever.
An individual can recharacterize a contribution to
a traditional IRA up until the due date, including extensions of
his or her individual return. A recharacterization of a contribution
differs from a conversion as it only involves current-year IRA contributions
(i.e., those that fall under the annual contribution limit rather
than the funds already in the account). In this case there is no
income inclusion, as the IRA funds were never deducted.
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