IRA Conversion

[S T]

In 2009 Client received a Traditional IRA distribution - code 1 $ 8,717
Went to the Credit Union and opened 2 ROTH IRA accounts, $ 6,000 and $ 2,500 and then received a distribution for $ 217 which is coded J

Income over $ 100,000

Feb 2010 Had client recharacterize the ROTH IRA for $ 6,000 back to a Traditional IRA
Credit Union won't recharacterize the $ 2,500 Roth IRA

How do I report the $ 2,500 -
early distribution code 1 taxable plus 10% penalty on the 2009 tax return
what about the failed conversion?

Should client just close the $ 2,500 account - which would take place in 2010 and then there would be another 1099R in 2010



Thanks

Sandy

[Possi]

Confusion...

Sandy, I'm as confused as you are. Glad I'm not alone.

This year, in 2010, my SEP IRA was converted to a ROTH along with my traditional IRA.

That was dumb... I opened it to avoid taxes in the first place. Now I'm paying taxes on it.

I could make a career of figuring out retirement plans! Hope someone can enlighten us on your question.

[S T]

Hmm

Thanks Possi,

guess I am not the only one confused on this conversion and the reporting - so far, hours of reading and trying to make the software work, the way I think it needs to

$ 2,500 will be taxable for 2009 as it was still in the Roth - which they are not eligible for, subject to 10% and then another 6% excise

But, if the financial instituion won't re-characterize and taxpayer withdraws the funds prior to 4/15/10 do I have to add the 6% excise tax??? I believe it has to be a $2,500 distribution with 10% penalties.

If the instituion wont recharacterize and it is taxed on the 2009 tax return, doesn't appear to make much sense to leave it in the Roth IRA, does it ?

I would welcome any assistance on this "mess"

Thanks,

Sandy

[S T]

Ideas

Anyone have any ideas? on this mess that the t/p and the credit union created

Thanks,

Sandy

[Roland Slugg]

I would ask the CU why it won't recharacterize the $2,500, and if no one at the CU can be persuaded to change the $2,500 into a traditional IRA, I would advise the T/P to return the $2,500 back to the original IRA via a trustee-to-trustee transfer. (He should NOT take a distribution from the Roth IRA and send it to the original IRA trustee himself.) If the T/P wants to do this, he must do it NLT 10/15/2010.