Roth Recharacterization Question.

[Guest Mike C]

I have in the 1999 year converted a traditional IRA to a Roth IRA and am wondering if a person can recharacterize part of the Roth conversion back to a traditional IRA or if the full amount of the conversion has to be recharacterized. I am wondering if I can protect part of my retirement that exists in the Roth and take an unqualified distribution out of the recharacterized traditional IRA. I am seeking to avoid the 10% unqualified distribution penalty on the Roth IRA.

[BPickerCPA]

You can do a partial recharacterization. You need not recharacterize the entire account, but the computation can be difficult.

I don't know what you mean by a unqualified distribution.

[Guest Mike C]

Thanks BPickerCPA,

I guess I should have used "non-qualified" instead. But to be more clear, I currently have an investment in the Roth and am anticipating a substantial gain from this investment. I would like to be able to recharacterize some of the gain for purposes of using before the 59 1/2 age requirement. I am willing to pay the 10% penalty on the recharacterized portion but not on the Roth portion.

[BPickerCPA]

Mike,

If I understand you, it sounds like you're doing things backwards. If you have a substantial gain in a Roth IRA, the LAST thing you want to do is recharacterize. Then the gain becomes taxable.

[Guest Mike C]

BPickerCPA,

Thanks for your response,

It does seem backwards but I currently need the appreciation of the possible stock gain to live off of. Studying for the May 1999 CPA exam, I used up all of my reserves. Now it's history and it looks like another dedicated effort is going to be needed.

AUD 81%

LPR 72%

FARE66%

ARE 73%