Re-characterization question

[Guest Jay Dansicker]

Recharacterization question: example: I converted my IRA to ROTH earlier this year. Value of conversion was $20,000. Now I am going to re-characterize back to IRA since value has gone down to $12,000. Next year I will possibly convert back to ROTH. My question is will I owe any tax on the difference $8,000? I am almost sure I won't, but I want to make sure the IRS doesn't think I left the $8,000 in the ROTH. I didn't, I just lost it in the market..

Thanks

Jay

[Guest Paul Leslie]

No you don't have to pay the tax on the $8,000. When you complete the Form 8606, I would attach a statement with the return explaining the details. I'm not sure if the IRS reads them but if they do send you anything in the future just resend that statement back to them with a letter.

If you want to recharacterize that $12,000 back to a Roth again, you will have to wait the longer of next year or 30 days. So if you do it in November of 2000, you will be eligable to do a recharacterize that money back to a Roth anytime in 2001. If you do it on 12/15/00, then then you will have to wait 30 days which will take you in January of 2001 before you can do the recharacterization.