I over contributed to a Roth in 12/08. I realized the problem in 1/09 and re-charcterized the overage.
At the time I made the contribution I bought shares in a mutual fund at $15.14 each. When I re-characterized the shares were only worth $14.82 or a drop of 2.113%. I sold shares before I actually made the re- characterization and so the broker transferred slightly less than I requested.
Do I get a schedule D short term loss If yes how do I calculate it. Will this show up in 2008 or 2009.
In hindsight I should have pushed the overage into my 2009 contribution. If I did how would I let the IRS know (i.e. what form)
I assume that when you say you recharacterized the excess you mean that you had the excess changed to an IRA contribution. This requires that you compute the earnings on the excess. The earnings could be negative. The Treasury published regulations in
2003, that explain how this calculation is performed.
This calculation does not use what happened to the shares you bought. The calculation uses the change in FMV adjusted for the contribution times the excess contribution.
Here's an example: FMV of Roth before the contribution = $100,000 Contribution = $5000 (Excess turns out to be $1000) FMV of Roth at time of recharacterization = $102,000.
Net Income = $1000 x (102000 - (100000 + 5000)) / (100000 + 5000) Net Income = $1000 x -3000 / 105000 Net Income = $1000 x -2.86% = -$29
Therefore, the amount that has to be recharacterized is $971.
Note that if you do not have access to the FMV directly before the contribution and at the end (e.g., you only have month ending data), then you would use the FMV at the end of the month just before the contribution and you would use the FMV at the end of the month that is just before the month of the recharacterization.
If the contribution created the ROTH, (there was no balance), then the change in value of what you bought and sold fits the equation.
You don't have a deductible loss because you still have an open Roth IRA.
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