Based upon an income tax projection you prepared in September of 2015, your client, Ann, converts $100,000 of her Traditional IRA to a Roth IRA on 10/1/15

Based upon an income tax projection you prepared in September of 2015, your client, Ann, converts $100,000 of her Traditional IRA to a Roth IRA on 10/1/15. The new Roth IRA is valued at the full $100,000 as she is planning to pay any income taxes associated with the conversion from other sources. Now, assume a major market decline occurs in November. By 11/30/15 the value of her Roth has declined by 30%. Which of the following are true?

1. If Ann does nothing, she will report $70,000 of income from the Roth conversion on her 2015 income tax return.
2. If Ann had separated her Roth conversion based upon asset classes, she could specifically recharacterize and reconvert the asset classes that declined in value.
3. If Ann recharacterized on 12/15/15, and then reconverted the same assets on 1/15/16. Assuming the account value upon the date of the reconversion is $80,000, she would only report $80,000 on her 2015 income tax return.
4. If Ann does nothing, she will report $100,000 of income from the Roth conversion on her 2015 income tax return; however, she has until April 15, 2016 or October 15, 2016 (if she extends her tax return) to decide if she wants to recharacterize all or a portion of the Roth conversion.

1. 1
2. 1, 2, 3
3. 2, 4
4. 2, 3, 4
5. None of the above are true

 

2. Assuming the same dates and transactions as in #1; however, assume Ann’s 401k plan allowed for in-plan Roth conversions and that she converted $100,000 of her Traditional (pre-tax) 401(k) dollars to her Roth 401(k) instead of using her Traditional IRA account. Which of the following are true?
   1. If Ann does nothing, she will report $70,000 of income from the Roth conversion on her 2015 income tax return.
   2. If Ann had separated her Roth conversion based upon asset classes, she could specifically recharacterize and reconvert the asset classes that declined in value.
   3. If Ann recharacterized on 12/15/15, and then reconverted the same assets on 1/15/16. Assuming the account value upon the date of the reconversion is $80,000, she would only report $80,000 on her 2015 income tax return.
   4. If Ann does nothing, she will report $100,000 of income from the Roth conversion on her 2015 income tax return; however, she has until April 15, 2016 or October 15, 2016 (if she extends her tax return) to decide if she wants to recharacterize all or a portion of the Roth conversion.
3. 1
4. 1, 2, 3
5. 2, 4
6. 2, 3, 4
7. None of the above are true

 

3. Janice is a participant in a qualified plan from which she is to receive annuity payments of $5,000 per month for an expected period of 30 years. Janice has an adjusted basis in the qualified plan in the amount of $250,000. How much of each monthly annuity distribution to Janice is taxable at ordinary income tax rates?
   1. $0
   2. $700
   3. $4,300
   4. $5,000