Roth Recharacterization Error
I have a client who (due to a market increase on the day of the recharacterization) recharacterized too much money back to their IRA account to undo a conversion.
The custodian is saying that it cannot be corrected without doing another conversion to move the excess funds (about $1000) from the IRA back to the Roth IRA. This will obviously create additional income via a 1099, which they say should not be reported by the client as taxable income. They have said they should just provide an explanation.
My question is- does this sound right? If so, are there any other forms that should be filed?
Thanks in advance
Permalink Submitted by Denise Appleby on Fri, 2008-12-05 05:43
[quote=”[email protected]“]I have a client who (due to a market increase on the day of the recharacterization) recharacterized too much money back to their IRA account to undo a conversion.
The custodian is saying that it cannot be corrected without doing another conversion to move the excess funds (about $1000) from the IRA back to the Roth IRA. This will obviously create additional income via a 1099, which they say should not be reported by the client as taxable income. They have said they should just provide an explanation.
My question is- does this sound right? If so, are there any other forms that should be filed?
Thanks in advance[/quote]
“Should not”? …are they willing to handle the inquiries from the IRS as to why the amount on the 1099-R is not reported on his/her tax return. If they agree that the amount recharacterized was too much, then can easily make the necessary adjustment by either (a) reversing the entire transaction and reprocessing it as of the original date, or (b) figure out how much is the excess recharacterized amount and reverse that amount . Your may want to have the call escalated.