Recharacterization and Tax Ramificatinos

[Guest jland]

Greetings,

I live in California. In 2007 I converted my traditional IRA to a Roth IRA. Unfortunately, I don't have the cash to pay the taxes I owe. So, I think I'm going to recharacterize the conversion back to a traditional IRA. When I converted, some federal taxes were withheld -- about 5%. I'm not sure how this amount was calculated, but I am glad it wasn't a higher percentage. The withheld taxes were reported on a 1099 R form and I am being penalized for the distribution. From what I understand, this 5% can not be put back in the traditional IRA when I recharacterize since I am past the 60 days from the conversion. Is that so? Are there any other issues or tax ramifications I should consider before recharacterizing?

Thanks in advance.

[Appleby]

Your understanding is correct. The amount withheld for taxes is not considered part of the conversion. Instead, it is treated as a regular distribution, subject to any applicable income tax and early distribution penalty.

When recharacterizing the conversion, be sure to include any NIA. If the entire balance in the Roth IRA is from the conversion +- earnings/losses, then recharacterizing the entire account balance will suffice.