HELP!! Very Dumb Roth Conversion mistake!

Submitted by William Chadwick on Mon, 2013-03-04 17:18

I truly hope you can help me with this MESS I’ve made!

In Sept of 2011 I converted $46,800 from my Fidelity TIRA to an existing Fidelity Roth IRA. In February 2012, I recharacterized $40,000. The loss for the computation period was -$15,875 resulting in a total recharactization of $24,125 which is reported on a 2012 Form 1099-R from Fidelity received in 2013. As an aside, later in 2012 I converted $8969 between the same two accounts …. reported on a second 1099 from Fidelity in 2013.

The $46,800 conversion was reported on my 2011 Form 1040 and Form 8606 and mistakenly the recharacterized $40,000 was also reported on Form 8606 and included an amount of $6,800 on Line 15b as a taxable amount.

Now, 2013, I’ve received from Fidelity the Form 1099-R for the $24,125 recharacterization and the Form 1099-r for the new 2012 conversion of $8,969.

I am assuming I should report the $8,969 conversion on Form 8606 and Form 1040 Line 15b. But how do I correct and/or report the difference in recharacterization? Do I have to ammend my 2011 Form 8606 & 1040 or can I somehow explain in a statement with my 2012 filing along with 2012 Form 8606 and Form 1040?

If you can figure this out… I would be most grateful. Pls advise if you need further information or clarification.



Submitted by Alan - IRA critic on Mon, 2013-03-04 18:01

  • Your 2011 return should include Form 8606 showing the retained conversion of 6,800 and that ends up on line 15b. That’s what you have done, but you also should have included an explanatory statement indicating dates and amount of both the recharacterization and conversion, the amount of the conversion recharacterized (40,000) and what it was worth at the date of recharacterization (24,125). The IRS now has the 1099R forms, so you may not have to send an explanation now if you did not do it before. With a 40% loss, you should have recharacterized the entire amount.
  • Yes, report the 8969 conversion on an 8606 for 2012 and 15b. The 1099R you just received should be coded to show that the recharacterization was for 2011 and therefore you would not include reference to it with your 2012 return. There does not appear that anything else needs to be done, but if the IRS inquires about the recharacterization (eg they might think you recharacterized less than 40k because of the abnormal loss), you may have to explain that, might even need to get a copy of Fidelity’s worksheet for documentation.

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