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Author: homwom Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121351  
Subject: Recharacterizing a Roth IRA Date: 1/18/2001 10:41 PM
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In March 2000 I opened & funded a ROTH IRA brokerage account for fiscal 2000 and invested in a stock that has done very well.

Now, due to an unexpectedly large deferred compensation payment for fiscal 2000, I will exceed the AGI limitations for a ROTH IRA. (I had initially expected the payment to be taxable in 2001, rather than in 2000).

How can I "recharacterize" my ROTH IRA to a TRADITIONAL IRA?

I spoke to one of the stockbrokers at my Discount Broker (where I originally set up my ROTH IRA in March 2000) about "converting" my ROTH IRA to a TRADITIONAL IRA.

He said that "...only a ROTH IRA that had been previously converted from a TRADITIONAL IRA could be converted back to a ROTH IRA." He also indicated that a ROTH IRA that was originally opened as a ROTH IRA could not be converted to a TRADITIONAL IRA. He said that I would have to sell the securities in my ROTH IRA, take a short-term capital gain, and open a TRADITIONAL IRA and fund it with $2,000.

This didn't seem to make a whole lot of sense to me, so I decided to ask the Motley Fool.

How do you "recharacterize" a ROTH IRA into a TRADITIONAL IRA? Is there a particular IRS Form involved? Do I have to open a new account and close the old account, or is there simply a way to "recharacterize" or "change" the original Roth IRA to a TRADITIONAL IRA without actually opening a new account and transferring funds/securities between accounts? Are there costs involved? Can you refer me to an IRS Publication(s) or IRS Code or IRS Reg. Section(s) that specifically address this situation?

Thank you for your assistance! Long live The Motley Fool!!!
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