Roth IRA Recharacterization and Form 5498
In December 2010, I requested a conversion of a traditional IRA to a Roth IRA. The amount converted was $600,000. In October 2011, the $600,000 had decreased in value to $550,000, and I requested a recharacterization of the full amount converted. This March, I received a Form 5498 from my brokerage firm that states $550,000 as the amount recharacterized. Is this correct? I thought the 5498 should show the entire amount of $600,000 as being recharacterized.
Permalink Submitted by Alan Spross on Tue, 2012-04-10 22:40
The 5498 is correct, because it shows the amount received by the TIRA custodian and is the same amount as the 1099R reporting the transfer from the Roth account. However, you still recharacterized your entire 600k conversion and have eliminated the tax on the conversion,
You should amend your 2010 return to eliminate the reported conversion on Form 8606 so the IRS will not be looking for you to report 300k on your 2011 and 2012 returns. On this 1040X for 2010 you should include an explanatory statement indicating that you converted 600k on (date) 2010 and in October, 2011 you recharacterized the entire conversion, which had declined to 550k on the recharacterization date.
For your 2011 return, you just ignore the entire issue.