Recharacterize very old Roth IRA

[Guest dtshedd]

Ten years ago I started to convert a Rollover IRA to a Roth using partial conversions. After a couple of years the market dropped and the funds in the Roth were worth less than the price at conversion, resulting in the payment of taxes on a loss. I subsequently recharacterized one of the partial conversions, since it was within the allowed timeframe, however I could not recharacterize the first partial conversion.

I had recently read in a newspaper article (which I did not keep) that it was possible to recharacterize an old Roth IRA conversion if you recharacterized all Roth IRAs you held, basically eliminating your participation from the Roth IRA program. I can not seem to find this in IRS publications or web sites.

The complete undoing of all of my Roths is not an issue since the I have only one left which is the one I am trying to recharacterize. My motive for recharacterizing is that the value of funds in the Roth is so small that I am limited in the investment choices I can make (my broker has many funds which have a $25000 minimum). If I can recharacterize this final Roth back into the Rollover I will have a sufficient balance to purchase/exchange into many more fund choices.

A final question and hopefully not one which is guilty of being posted to the incorrect message board. My employer is now offering Roth 401K. I am contemplating participating in this program when I reach 50 (soon) and will be eligible for catchup contributions/increase in contribution limits. Will taking the actions above make me ineligible for Roth 401K?

Thanks to all who respond.

Dan

[masteff]

The IRS publication that would cover it, if what you describe is indeed allowed (I didn't go look as your question is more complicated than I care to tackle), would be 590: http://www.irs.gov/pub/irs-pdf/p590.pdf

[Appleby]

Generally, you cannot recharacterize a conversion if it is past the October 15 deadline.

The article to which you refer may have been discussing writing off losses, which requires a distribution of all of your Roth IRA balances.

See http://www.irs.gov/publications/p590/ch02.html#d0e11029