The IRS Audit Blog

Posts Tagged ‘balance account’

Question: Traditional IRA to Roth IRA recharacterization.?

I contributed 4000 to my traditional IRA (T-IRA) in oct 2007 for 2007 and then 5000 again for 2008. Now I want to recharacterize my 2007 contribution which is 4000 to Roth IRA.

I follow the IRS 590 publication I am unable to decide what will be my account opening balance and what would be my account closing balance.
Since I have made 2008 contribution of 5000, I am not sure how to find the earnings for my 2007 contribution of 4000. Can anyone help?
I have called my IRA manager byt they have asked me to calculate the earning, thats why I have posted it here.
i know the formula earnings= contribution x(account closing balance – account opening balance )/account opening balance
this works great if I did not put the 5000 for 2008. Now my problem is I have earnings from my 2008 contributions also

Answer: Couldn’t you just break this math problem down into multiple pieces and then total the results?

1. You contributed $4K in Oct 2007.
2. The balance immediately prior to (i.e., the day before) your $5K contribution in 2008 would be totally allocated to the $4K contribution, right? What is that amount?
3. Next add that total amount to your $5K contribution. What percent of the total is that prior amount? (i.e., what is the ratio?)
4. Any gains that you received from that point on, you should pro-rate (by that ratio) between your original $4K contribution and your final $5K contribution.
5. Add those pro-rated gains (allocatable to the $4K contribution) to #2 above. That should give you the total amount associated with your initial $4K contribution.

“Any problem can be made simple if you break it into small enough pieces.”
============

New Roth retirement account options for 2010

When deciding whether to save for retirement using a traditional or Roth IRA, many people wrestle with the question, “When I retire, will my tax rate be higher or lower than it is today?”

dylan burns as michael jackson