Recharacterized more than contribution amount from Roth to Traditional IRA

[steve-o]

Client made a Roth IRA contribution for 2011 in February 2012. Later determined that client's AGI was too high for a Roth contribution in 2011 and recommended the client do a recharacterization of the $6,000 contribution, which was completed prior to filing of the 2011 return. Client received a deduction for IRA contribution (no retirement plan in place).

When completing the 2012 return this tax season, received a 1099-R that shows the full balance in the Roth account (some $30,000) was moved to traditional IRA.

Is this allowed? If so, how to report on the 1040? If it is allowed, I assume the client has basis in the traditional IRA (less $6,000).

[Borsley]

I don't think this is allowed. (Pls someone correct me if I'm wrong) What type of tax reporting did the custodian provide (i.e...Form 5498 & 1099R)? That should be interesting.

The $6k recharacterization of the contribution should be allowed as long as it was done prior to the taxpayer's tax filing deadling plus extensions but I'm not sure there is an allowable method for converting a Roth IRA to a Traditional IRA.

Hopefully someone can be a bit more definitive than I am on this.

[masteff]

You need to figure out where the other money in the Roth came from and when. See the 3rd question here: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-IRAs-Recharacterization-of-Roth-Rollovers-and-Conversions

Also see IRS Pub 590 and Form 8606.

Oh, and are you sure the client didn't just do very well in the market and the $30K is the actually the $6K plus related earnings?

[Appleby]

Seems the paperwork was not completed properly or the IRA custodian misunderstood the instructions, unless (as mastiff asked), the assets in which the $6,000 was invested grew to $30,000.

If the Roth IRA has assets other than the $6,000 contribution, the IRA custodian should be contacted to have the transaction corrected. Any amount contributed or converted to the Roth IRA before 2011 was not eligible for recharacterization under the 2011 tax filing deadline (plus extensions).

[steve-o]

Client was able to have the custodian issue corrected 1099-Rs. Thanks for the feedback!