Recharacterize Roth Conversion Question.

[Guest irr7342]

I converted a regular IRA valued at $8,000 to a Roth on 12/31/00. The current value is $7,000. I filed my 2000 tax return and included the $8,000 of conversion income. Is it to late to recharacterize the $8,000 and at what value? Do I amend my return? What steps do I take to report it?

[BPickerCPA]

If the conversion in question is the only contribution to this specific Roth account, you effect a recharacterization by having all the assets in the account moved back to a traditional IRA. You would need to file an amended return to get your taxes back.

[John G]

It looks like your "savings" would be the tax on the difference between 8k and 7k... perhaps $280 at 28%. I am not sure I would go through the effort for that amount. Remember, the timing of these events is often beyond your control so you never know the actual numbers until the custodian tells you when and at what price it was done.

[BPickerCPA]

John,

If he converted $8K which is now worth $7K, he saves tax on the entire $8K if he recharacterizes.

You're correct that he only saves tax on $1K IF he reconverts (after waiting the more than 30 days).

Barry

[John G]

Yes Barry, I agree with your point. I was commenting from the recharacterize - second conversion perspective. The 30 day rule plus the lack of control of custodian timing ("Its in the que") means that you can not predict the actual values ahead of time for either end. The $1k gap could easily double or be erased.