It’s OK to combine them. The advantage of having them separate is accounting transparency and simplification in the event of recharacterization.

I keep a Roth account for new conversions and when I first know that I will not be recharacterizing any of it, I transfer the balance to the account that holds regular contributions and prior conversions. This is not necessary if your custodian can efficiently calculate the earnings and/or provide you with an earnings quote prior to finalizing your recharacterization decision. Obviously, what you don’t want is to have too much moved back to the TIRA, to be taxed when it comes out.

The actual tax reporting is not affected either way, however. An 8606 must be filed for any year where there is a Roth conversion or distribution until the Roth is fully qualified. A recharacterization also requires an explantory statement to assist the IRS in interpreting the 1099R and 5498 info forms issued.

Professional tax software will capture enough information to handle the 8606 on distributions if there is continuity since 1998. For home preparers, there should be a tally sheet kept for each year showing the amounts of regular contribution, conversions, and if a distribution was taken, the new balance left for contributions and conversions. Then you don’t have a research project to complete the 8606 in the event you take a distribution before your Roths are fully qualified.

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