roth recharacterization
Two part question:
1. 1,000 shares of a single company stock was rolled to a Roth in 2010 with value, at time of conversion, equalling $10,000. No other contributions or conversions were made to this Roth. No income earned during the interim. Stock is now worth $5,000. All 1,000 shares are now to be recharacterized back to traditional. What is the total value amount to be recharacterized? I am concerned showing the $5,000 as the recharacterized amount may cause confusion with the IRS regarding income inclusion, which should be zero since the entire 1,000 shares are to be recharacterized.
2. Initial Roth conversions were made from a SIMPLE IRA, in which the participant had held for a lengthy enough time period to allow direct rollover to the Roth. If the Roth amounts are now to be recharacterized, can they be rolled back into the SIMPLE or should the IRA owner create a new traditional IRA acccount to receive the recharachterized amounts?
Thank you
Permalink Submitted by Alan Spross on Thu, 2011-09-29 18:28
1) The Form 8606 Inst indicate that you should include an explanatory statement with your tax return regarding the recharacterization. The statement should include the details of both the conversion and the recharacterization. For example, in this situation – “On xx/xx/2010 I converted 10,000 to my Roth IRA. On xx/xx/2011 I recharaterized the full amount of the 10,000 conversion, which was then worth 5,000 back to my traditional IRA”. Income inclusion would then be -0-. The 1099R for the recharacterization will show the 5,000 value that actually transferred, but the explanation will help the IRS square up the total transaction with your return.
2) The funds can be recharacterized to either a TIRA or back to the SIMPLE IRA. Taxpayer has a choice. This is the only situation where funds from a Roth IRA can be transferred to a SIMPLE IRA.