The IRS has extended the deadline for changing Roth IRA contributions or conversions for 1998 back to traditional IRAs. The new deadline is December 31, 1999, whereas the previous deadline for timely filers was October 15.
The extension will avoid adverse consequences for taxpayers that converted to a Roth without realizing that they were ineligible to do so. The IRS came to this decision in light of the problems taxpayers have had in applying the Roth IRA rules and limitations.
The IRS is sending letters to approximately 20,000 taxpayers that attempted Roth IRA conversions for which they were ineligible. This may include individuals with over $100,000 in income and married couples living together but filing separately.
Other problems resulted from taxpayers not realizing that their income could reduce the $2,000 annual limit on Roth IRA contributions. The limit is phased out for married couples with incomes between $150,000 and $200,000, married couples with incomes under $10,000 living together but filing separately, and all other filers with incomes between $95,000 and $110, 000.
Taxpayers needing to recharacterize a 1998 Roth IRA contribution or conversion must do so by December 31. Generally, taxpayers will have until April 15, 2002, to file an amended tax return showing the correct result.
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