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<< In Oct 1999, I opened a Roth IRA and contributed $2000. In January 2000, I made another $2000 contribution.

Now I'm doing my taxes. Oops, with overseas income and capital gains, I'm not eligible for a Roth. I'm reading up on recharacterization; I can open up a traditional IRA (non-deductable) and recharacterize. All things staying the course, I probably won't be eligible for a Roth in 2000 either.

1) Do I just recharacterize the whole $4000 and the earnings now, or only $2000 this year and $2000 next year? >>

Thanks for the clarification that it's the AGI limit that's tripping you up. You have until 10/16/2000 to recharacterize the 1999 contribution. If you're sure that you'll be over the limit for 2000, you might as well go ahead and do that one now too. However, you can wait until the end of 2000 to be sure. You will have until October 2001 to fix the 2000.

<< 2) Recharacterization should generate a 1099-R from somebody (the old Roth IRA trustee?). Do the numbers on this 1099-R get reported in 1999 or 2000? If this recharacterization is reported in 1999, does that mean I have to file an extension while I wait for the new account to be opened and the 1099-R mailed to me? >>

Any 1099-R's will be for the year the recharacterization occurs, issued in January of the following year. Here's how you report. You are recharacterizing your Roth IRA contribution(s) as nondeductible (I presume) traditional IRA contributions. You report such 1999 contributions on your 1999 Form 8606, Part I. You also report the Roth distribution/recharacterization in Part III of your 1999 Form 8606.

When the 1099-R comes out next year it will be coded as a recharacterization, and you'll just report it with a zero taxable amount.

TMF ExRO
Phil Marti
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