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March 24, 2011


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I just finished this process. The article didn't mention a few key things:
* For 2010 only, you can keep all you are not re-characterizing as a Roth, but pay the tax split evenly over 2011 and 2012 taxes.
* Or you can take it all in 2010. You can't split over the three years, which I would have preferred, but found out was not possible.
* I had three different Roth Segregation accounts, as he called them. The two stock ones had appreciated considerably, and I kept them, and re-characterized a bond fund that had barely appreciated. The tough part was to decide whether to pay $14k in taxes now, or pay no taxes this year, and $7k each in 2011 and 2012. That is the option I chose. The advantage is the funds are converted as Roths now, with all the benefits, and I will just increase withholding or deductions to cover the tax in the next two years.

I have a question on a strategy I was considering for my IRA. I currently have only a Roth (and plan on keeping it that way). My idea was to contribue the max $5,000 to a new traditional IRA account for 2010 to deduct the contribution, and then convert it to a ROTH and split the taxes between 2011 and 2012. The idea is to save on taxes this year and pay them back over the next two years. I should not be moving tax brackets over the next two years (unfortunately :( ), so this would benefit from a TVM perspective.

The only thing is, I'm not sure if this can be done. And I haven't seen anything in regards to this strategy. Also, if it would have been possible, is it too late now even though we haven't reached the contribution deadline for 2010? Thanks in advance for any advice on this.

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