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I am having some difficulty in figuring out Form 8606.

My situation: In 2000 I rolled over 100% of a former 401k distribution into a IRA and then converted 100% of that into a Roth. Due to the value going down about 40%, I then recharacterized the full amount to a traditional IRA. At no point in year 2000 did I contribute any money to any IRA.

My major question has to do with part III. It says to complete part III ONLY if I received a Roth IRA distribution or recharacterized 2000 contributions.
Is recharacterization considered to be a distribution? If it is, then when I fill out the numbers from line 17 thru 27, it shows I have a taxable distribution of the recharacterized amount! Or am I just missing something here?

As it is, I have only filled in part II. If anyone out there has filled out 8606 and is in the same position I am, please respond.

Thanks in advance!
Trond
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My situation: In 2000 I rolled over 100% of a former 401k distribution into a IRA and then converted 100% of that into a Roth. Due to the value going down about 40%, I then recharacterized the full amount to a traditional IRA. At no point in year 2000 did I contribute any money to any IRA.

My major question has to do with part III. It says to complete part III ONLY if I received a Roth IRA distribution or recharacterized 2000 contributions.


You do nothing with Part III. Your conversion is not a contribution in the sense of Part III. If you care about such things, there are two things going on in Part III: adjusting basis and computing taxable distributions. Neither applies to you.

Your 8606 is easy: the amount converted goes on both lines 14a and 14b, and you attach an explanation of the change in value between conversion and recharacterization.

You have to do some calculating for line 15a of the 1040, though. Add together the amount converted and the value when you recharacterized it. That sum goes in 15a, again with an attached explanation. If you recharacterized during 2000, you should have a 1099-R for each of these, but if you recharacterized in 2001, you won't have a 1099-R for the recharacterization, but you still include it in line 15a. Line 15b of the 1040 is, from these transactions, zero.

Phil Marti
VITA Volunteer
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