I have a client who was impacted by the latest hurricane and gets an extension til 01/05/09.
In 2007 he converted a traditional IRA to a ROTH in two lumps. One 50k in January 2007, and 60k in September 2007.
He comes to me a month ago saying he needs to file his 2007 and is worried about his Traditional to ROTH conversion….
It turns out, his MAGI was too high and he did not qualify to convert any money from Traditional to ROTH.
So, I tell him to re-characterize the Traditional conversion to ROTH back to Traditional.
My question is does the market decline which reduced his 110k ROTH conversion to 70k affect him in any way?
He converted 110k and then re-characterized 70k. He never took any distribution, it was all a trustee to trustee transfer both way, actually the trustee was the same brokerage for traditional and roth and now traditional again.
I am concerned that since he converted 110k, and now only has 70k to re-characterize that the IRS might try some shenanigans and have the client pay taxes on $40k in market losses.
Any help is appreciated.
Thanks,
Marc
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