In 1998 I converted a $10,000 traditional IRA to a Roth IRA, and elected to spread the income over 4 years ($2,500 each year). Therefore, on my 1998 tax return, I paid tax on $2,500 of the $10,000 at the 15% tax rate [10,000*.25*.15] = $375.

In 1999, I recharacterized the entire conversion back to a traditional IRA. On my 1999 tax return, how do I reclaim the $375 I paid in extra tax last year? Or do I just make my traditional IRA "basis" $2,500?

What you have to do is amend the 1998 return to get back the tax paid.


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Barry Picker, CPA/PFS, CFP
New York, NY

We have seen a lot of issues about Roth conversions at this site. Problems with qualifying, paying the taxes, getting the custodian to act, etc.

In you question, you did not indicate why you decided to recharacterize. Can you explain?

quote:

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Originally posted by John G:
We have seen a lot of issues about Roth conversions at this site. Problems with qualifying, paying the taxes, getting the custodian to act, etc.

In you question, you did not indicate why you decided to recharacterize. Can you explain?

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I recharacterized the conversion back to a traditional IRA for two reasons. First, the IRA fund lost money over the year. Secondly, I the traditional IRA better fits my savings goals.

In answer to JohnG's question; I recharacterized the conversion back to a traditional IRA for two reasons. First, the IRA fund lost money over the year. Secondly, the traditional IRA better fits my savings goals.