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<< In September of 1999, I had a traditional IRA and a Roth IRA. I decided to convert the $1711 from IRA into Roth IRA. Of course, my AGI went over $100,000 and now I must recharacterize (I like to call it de-rothing). >>

I like that.

<< My question is, I am using MacIntax software, and on the Mass return, it is recording the $1711 distribution as income. Do I still have to pay taxes on this as a distribution even though I am having it recharacterized? Can I ignore the 1099-R from this distribution or do I enter it and pay taxes? If so, do I get to deduct next year? >>

Ah, software. You don't tell me how this looks on your 1040. (It should be $1711 in 15a and -0- in 15b.) There should also be a Form 8606 which shows both the conversion and the recharacterization. Unless there's something weird in MA law that doesn't recognize recharacterizations, this shouldn't affect your state return.

<< Also, my tax software wants to know the total value of the account as of December 31, 1999. Since I already had valid ROth Ira money in this Roth account, that value would be inflated as far as what the traditional IRA would be worth had it not been converted at all. >>

Sorry, can't help you with this one, because I don't know why the software wants to know. The best I can suggest is to complete the recharacterization (the earnings have to be recharacterized too), finish up and print out the return, and if you have questions, come back with the specifics of what doesn't look right.

Phil Marti
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