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Author: Glad0 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Recharacterization Question Date: 4/27/2001 7:21 PM
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My husband and I each did partial conversions of our traditional IRA's in May, 2000. With the falling stock market, we decided to recharacterize in December. After that, but before the end of the year, we each did another partial conversion. Even though it may not have been necessary, we decided to keep it less complicated by having separate accounts for each transaction. We have filed an extension for 2000, and are currently trying to make sure everything has been accurately reported to the IRS.

Our tax person has asked for a total basis as of 12/31/99 for each of our traditional IRA's. I have looked at the 8606 and am not sure if this means all past contributions. If so, why is this needed? The instructions on Line 2 state that if this is the first year for an 8606, we can fill in 0.

Our tax person says this is something provided by the broker who handles the accounts. We have had three different brokers for both accounts. I don't want to do unnecessary record digging, if it isn't really necessary. Thanks --Glad0
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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50657 of 121061
Subject: Re: Recharacterization Question Date: 4/27/2001 10:06 PM
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My husband and I each did partial conversions of our traditional IRA's in May, 2000. With the falling stock market, we decided to recharacterize in December. After that, but before the end of the year, we each did another partial conversion. Even though it may not have been necessary, we decided to keep it less complicated by having separate accounts for each transaction. We have filed an extension for 2000, and are currently trying to make sure everything has been accurately reported to the IRS.

Let's stop here for a second and make sure that you don't have a failed reconversion. If you recharacterize a conversion, as you did, you must wait until the latter of January 1 of the year following the initial conversion or 30 days after the recharacterization before you convert again. As long as your second conversion was of different assets than the first, I don't think you have a problem, although it's difficult to find anything directly on point. (We've looked when the issue came up in past threads.) If you reconverted the same assets, you definitely do have a failed reconversion.

Our tax person has asked for a total basis as of 12/31/99 for each of our traditional IRA's. I have looked at the 8606 and am not sure if this means all past contributions. If so, why is this needed? The instructions on Line 2 state that if this is the first year for an 8606, we can fill in 0.

Basis in a traditional IRA is the total of your nondeductible contributions to it. (These should have been reported on Form 8606, Part I, in the year(s) you made them.) If you never made a nondeductible contribution, your basis is zero and every distribution, including conversion to Roth, is fully taxable.

Our tax person says this is something provided by the broker who handles the accounts.

This is sounding more like the value as of 12/31/1999 rather than your basis. Ask your tax person for clarification.

Phil Marti
VITA Volunteer

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