Roth conversion and recharacterization rules…?

Hello,
I’m not clear on the rules for recharacterization. If I do a Roth conversion now, I will owe taxes on it for 2008. But I understand if I re-characterize it prior to my tax filing for 2008, then I don’t owe the taxes. But I’m confused about what dollar limits may be involved depending on whether the Roth grows or shrinks thru the year.

For example, assume I convert $10,000 now.

If it grows to $$15,000 by 4/15/09, of course I would not recharacterize it.

But if it shrinks to $5000, I would recharcterize it, so as to avoid paying the tax on $10,000, which would be double the tax rate on the $5000 current value of the Roth.

My question is… if I recharacterize the $5000 account in early 2009, will that eliminate the tax due on the original $10,000 conversion…? Or would it eliminate only the tax on the $5000 recharacterized, leaving me with a tax bill on the other $5000 that Mr Market ate up….

(Which likely makes the recharacterization unwise.)

Thanks…!



Let us know if this helps. http://www.irahelp.com/phpBB/viewtopic.php?area=&t=981 . The same rules apply to recharactgerizations.

See also http://retirementdictionary.com/Recharacterization.htm

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