You would get the tax back if you recharacterized in time and filed an amended or extended return in time. The recharacterization results in your tax form being as if the conversion had never occurred in the first place, so all accompanying calculations would follow. There are no permanent consequences except you have a waiting period before you can re convert the same amount.

With respect to SS taxation, when 85% of your SS is included in gross income, the effective tax rate on the 85% figure is 27.75% in the 15% bracket (1.85 X 15%). After all the SS is included, the marginal rate drops back. Depending on how much you convert, you might end up paying the higher taxes during the conversion years but later on your reduced RMDs on what is left in your TIRA may reduce the amount of SS taxed for many more years. The SS taxation threshold is NOT indexed for inflation and therefore every year that passes a higher % of taxpayers have either 50% or 85% included in their taxable income. Since the portion of tax based on SS taxation is “supposed” to go to the SS trust fund and the fund is in long term trouble, the chances of indexing the income threshold are probably poor. Congress has never come close to passing an indexing provision for this. All this means is that depending on the total picture, paying some taxes on SS benefits may well be worthwhile in the long run, but it IS a real cost of conversion as is surcharged Medicare Part B premiums two years after conversions that put you over the MAGI threshold for Medicare surcharges.

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Here is the explanation from SSA. I have not heard of any exemptions for Roth conversions yet, so I would expect a 2010 conversion reported in 2011 and 2012 could result in a Part B surcharge in 2013 and 2014, since the surcharge is for the second tax year after the year of the reported income over MAGI:

http://www.ssa.gov/pubs/10161.html

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