I'm having an awfully difficult time trying to understand how the regulations governing Roth IRAs might apply to a situation like the following. Consider the following facts:
- In 2007, T contributes 00 to a Roth IRA.
- In 2008, before the 2007 filing deadline, T realizes he was ineligible to make a Roth IRA contribution in 2007, so he recharacterizes the contribution as a Traditional IRA contribution. He deducts 00 on his 2007 Form 1040.
- Still in 2008, about 90 days later, T converts the Traditional IRA to a Roth IRA and declares income for 2008 equivalent to the value of the IRA on the day of the conversion.
- By 2009, but before the 2008 filing deadline, the value in the IRA has fallen sharply, and T has other reasons (to qualify for a credit) to try to reduce taxable income. So he recharacterizes step #3 to undo the conversion.
- In late 2009, T reconverts the IRA into a Roth IRA.
Are all these steps valid? If not, where does it go wrong? Is the second conversion, step #5, an allowable conversion but not an allowable way to adjust the addition to income from the conversion? (That is, would the conversion in step #5 succeed but not change the taxable income for the conversion from what it was in step #3?) I'm just not sure of the right way to approach this, since the closest regulations seem to imagine an initial *conversion* rather than an initial *contribution*.
Many thanks for any thoughts.
-P