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After learning that having two IRA accounts and converting only one of them to a Roth creates ongoing tax problems,

I have never heard of this before. Either you've misinterpreted something or we have radically different concepts of what a problem is. Could you please elaborate on the nature of this problem and why a partial Roth conversion creates it?

I recharacterized the IRA contributory to Roth conversion that I made in 2012.

We need to pause and clarify here since "IRA contributory" doesn't mean anything in tax speak. What did you recharacterize, a contribution or a conversion? I'm assuming it's a conversion, but I just want to be sure.

Unfortunately I learned about the problem at the last minute and, though I gave online instructions to my broker to transfer the money back to my IRA before April 15, 2013, the transfer was not completed until April 15th. I received a Form 5498 for the IRA to Roth conversion.

Relax. You have until 10/15/2013 to complete a 2012 recharacterization. See the instructions for Form 8606.

Turbotax does not seem to recognize the problem of converting just one of two IRA accounts to a Roth. It must recognize that something is wrong, however, because it tells me I will have to pay a penalty for having too much income to have made the conversion in the first place.

Leave poor TT out of this. I recognize that something is wrong because

1. There is no income limit for Roth conversions and
2. You have somehow told TT that the conversion was a contribution.

Find it and fix it. If you need to talk to TT about this again, at least you know what the problem is.

As far as your return is concerned, line 15a of the 1040 should show the amount converted, and line 15b should show zero. See the Recharacterizations section of the Form 8606 instructions for what all you need to do.

Rule Your Retirement Home Fool
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