Recharacterization - How to handle?

so i asked my custodian to recharacterize the whole 2K contribution to Roth IRA (I already have an account with them for Roth).

for the fact that i made contributions to existing trad IRA and example uses a new trad IRA. Does that make any difference? The reason is for this example, I need to attach only a statement to my return and then ignore the 1099-R and 5498 that i will receive next year. Else I might have to file 8606.

From the instructions: You made a contribution to a traditional IRA and later recharacterized part or all of it to a Roth IRA. If you recharacterized only part of the contribution, report the nondeductible traditional IRA portion of the remaining contribution, if any, on Form 8606, Part I. If you recharacterized the entire contribution, do not report the contribution on Form 8606. In either case, attach a statement to your return explaining the recharacterization.

This seems to be exactly your situation. For the record, not to sound too pedantic, You only have one Traditional IRA, it might be in a number of accounts (some even called "rollovers" a legacy from when you needed to quarantine other retirement conversions) but it's one IRA. The IRS use of the phrase "New IRA" strikes me as misleading.

The answer is correct. However, the second paragraph is not right as you can have different traditional IRAs. The word "traditional" merely denotes that it is not a Roth IRA. E.g., you can have an IRA that you created and names your son as beneficiary. That IRA uses one table of life expectancies for the RMD. You can have another IRA that you inherited. That IRA uses a different table for life expectancies. And finally, you can have a third IRA that names as the sole beneficiary a spouse who is more than 10 years younger. That IRA also uses a different table of life expectancies. So... you can't add those IRA balances together to obtain an RMD. You must calculate the RMD separately for each traditional IRA to arrive at the total. The total RMD can then be withdrawn in any manner you so desire. You have three traditional IRAs. The only time you may add different IRA accounts together to obtain an RMD is if the accounts all used the same life expectancy tables.

The 'bene' IRA is distinct, agreed. The IRA accounts set up with different beneficiaries are still under the IRA umbrella while the owner is alive, and for the OP's purpose, I was making a point. The accounts get separate attention when RMDs are started and when the owner dies.

If there's another distinction for an under 70.5er, I'd like to hear of it. Your points above are appreciated, can't think 'one IRA' for the entirety of one's life. Agreed there.

You have IRA1 naming your elder son. You have IRA2 naming your youngest son. You are age 50. You set up IRA1 for SEPP (substantially equal periodic payments) distributions to avoid the early withdrawal penalty. You now have 2 traditional IRAs each operating under a different set of rules.

I tip my hat to you, Alan. I'm aware of Sec 72(t) withdrawals, and wrote about the process, myself. In the future, I'd probably refrain from the "One IRA" statement, as in hindsight, it's pretty ignorant. Literally. It ignores all the excepts you kindly pointed out. "for this purpose [as in a roth conversion] your traditional IRAs are combined, i.e. you can't claim one IRA is post tax and convert that, keeping the pretax separate." That's the wording I'd choose.

(reader - this is slight tangent to the OP's question. Alan offering a valuable bit of info)

Again, thanks.

Continuing the tangent, if a conversion is recharacterized, there is a concept of individual Roth IRA's when it comes to calculating how much of the earnings (gain or loss) must come back out with the recharacterized amount. It is not averaged across all of your Roth IRA's, just the one the conversion went into.

I take this to mean each separate account number that your financial institution assigns for Roth IRA purposes is a separate Roth account. This would usually correspond to how 1099-R's are issued for the conversion and recharacterization (per account).

From the OP:

You don't need to file an 8606 because you are recharacterizing the entire contribution. The 1099-R for 2012 will have a code that indicates it applies to 2011 tax year.

Per TD9056, you have to pro rate the earnings (plus or minus) based on the adjusted opening balance and the adjusted closing balance of your IRA (most likely your broker will do this for you). The adjustments have to do with other contributions to or distributions from the IRA during the computation period (beside the original contribution and the recharacterization distribution that mark the beginning and end of the computation period). It is much cleaner to avoid those if you can.

In this case, the IRA is just the specific IRA account involved. You don't have to pro rate the earnings over all of your Traditional IRA accounts. However, if you have a single Trad. IRA account with multiple investments, you cannot just cherry-pick the specific investments you wish to recharacterize, earnings must be pro rated across all of them.

From JoeTaxpayer:

Joe, I think you know well that for conversions, one can perform multiple conversions into separate Roth IRA's so that one can then effectively cherry-pick which to recharacterize. The same concept applies in the OP's case -- the Trad. IRA to which the original contribution was made is considered a stand-alone entity for recharacterization purposes.