Roth Recharacterization and account went down
If I am 65 and did a Roth Conversion from a Traditional IRA in the amount of $591,000 in January 2010 and the account went down to $580,000 in June 2010 and at that time the account was recharacterized back to a ROTH IRA? Do I have to pay tax on the difference? Since the 1099’s don’t match, how does the IRS know I shouldn’t be charged for the difference? Is there a code section to refer to?
Permalink Submitted by Alan Spross on Fri, 2011-04-15 23:24
I think you meant to say that you recharacterized the conversion back to a TRADITIONAL IRA.
No, there is no tax bill here because your conversion was completely reversed, and you are treated as if nothing had happened for tax purposes. You took no funds from your IRA. The 1099R forms will always have different amounts in this situation. You are supposed to include an explanatory statement with your 2010 tax return showing dates and amounts of the conversion AND the recharacterization. It should also state that you did a full recharacterization of your conversion. You will not need any other forms on your return relative to the conversion and recharacterization.
The above is contained in the Inst for Form 8606.