Recharacterization question
In looking through the instructions for the form 8606, on p.3, #2 (under recharacterizations), the instructions say that if one made a partially deductible contribution to their TIRA, due to their AGI being within the phaseout range, that effectively the non-deductible portion of their TIRA contribution may be recharacterized, along with associated earnings (loss) to their Roth IRA. It also says that this requires an accompanying statement on their 1040 identifying the recharacterized amount and that a form 8606 need not be filed as the after tax part of the contribution had been recharacterized to a Roth.
So if I’m reading this correctly, it seems to be a 2 step process for making a fully deductible TIRA plus a Roth IRA contribution in the same year when the contributor’s AGI is in the phase out range. Am I reading it correctly?
http://www.irs.gov/pub/irs-pdf/i8606.pdf
BruceM
Permalink Submitted by Alan Spross on Sun, 2009-02-08 22:02
Hi, Bruce.
It would be a two step process only if the initial contribution went totally to one type of IRA. This particular example addresses the somewhat common situation where a full TIRA contribution is made and in the filing process it is determined that only part of it is deductible. Recharacterizing the rest to a Roth is preferable to leaving it as a non deductible contribution.
However, it can be a single step process if the taxpayer is making a prior year contribution and checks the worksheets to see how much can be deducted. The taxpayer could then simply split the contribution between the TIRA and Roth and never have to recharacterize.