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Goldstucker writes (in part):

Does this require a new account to be setup (Roth, IRA, Non-traditional IRA)? How do you bookkeep that taxed contribution. You've already paid taxes on it. You shouldn't have to pay taxes at distribution. Do you keep a copy of tax return with account statement? Your co-mingling taxed deferred and taxed contributions. Yes you can recharacterize but were do you move the money?

I reply:

You do not need a third account; simply recharacterize Roth IRA contributions (and associated earnings) into any traditional IRA account that you may already have. That account then will have a combination of deductible and non-deductible (because the combination of your participation in a 401(k) and your income renders you ineligible to deduct contributions; if you did not participate in a 401(k), your contributions would be deductible) contributions. As you correctly infer, your non-deductible contributions will give you a basis in the traditional IRA. This is reported annually to the IRS on Form 8606 (in any year for which you have made a non-deductible contribution), which you will include with your tax return. --Bob
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