Q: Is it possible to do a Roth IRA conversion retroactively? For example: can I amend my 2009 tax return and do a Roth IRA conversion for that tax year at the same time? If so, what is the deadline for doing so?
A: With the discussion in Washington of letting some upper-income tax breaks expire, many people may be thinking about getting their Roth IRA conversions done before that transpires. After all, converting a traditional IRA into a Roth plan lets you close the traditional IRA before you reach the age to be eligible for distributions, without incurring the usual 10 percent tax penalty. However, you must include the amount of the conversion in ordinary income for that year for tax purposes.
The Bush administration's tax breaks for households making over $250,000 were scheduled to expire after this tax year (2010). A Roth conversion could push a household that wouldn't normally be in that tax bracket above that threshold for the year of the conversion. So, better to get the conversion done for this tax year, before a higher tax rate could possibly kick in.
The deadline for such decisions would normally be the filing deadline for the tax year in question -- i.e., April 15th. So, at this point it would be too late to make a conversion effective for 2009, but there is still plenty of time to make it effective for 2010. Conversions in 2010 have the added advantage of allowing you to declare the conversion as income in 2010, or split it between the 2011 and 2012 tax years. The latter could be advantageous in some scenarios.
Those are some general guidelines on the timing of Roth conversions, but before making any final decisions affecting taxes you should talk to a tax advisor who is familiar with your particular situation.
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