tobe wrote:

- quote -

Based on the facts you have presented, the trustee presented
you with $120 of good faith taxable income. When they told
you that it was not an IRA or Roth IRA distribution you
should have listened. When you recharacterized your
conversion, the trustee should have transferred from the
Roth IRA to the IRA the amount you specified plus any
earnings on that amount. I'm guessing, the trustee did just
that. They then decided to pay you $120 for the delay.
When you sent the check back and "effectively" told them to
put it into the Roth IRA, you told them to make a
contribution to your Roth IRA as that money never came from
inside either IRA.

You need to tell the trustee to remove the 2006 $120
contribution plus any earnings and return it to you before
the tax deadline for 2006. You would owe income tax on the
$120 and its earnings. If you have not attained age 59 1/2,
you would owe the 10% penalty on just the earnings.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Last December, I rolled over part of an IRA into a Roth IRA
(both existing accounts at the same company). In February,
because of an unexpected event, I decided to recharacterize
about half of the rolled-over money back to the original
regular IRA. The company doing these transactions took an
inordinate time to complete all of these transactions (about
3 months each!!)

In about May, I received a check from them in the mail for
about $120, representing interest/dividends earned on the
money that was being recharacterized, between the date
recharacterization was supposed to take place and the date
it actually occurred! [The actual recharacterization took
place in May, but is 'dated' February 15 for IRS purposes.]
Their letter indicated that this was not a distribution of
either IRA or Roth IRA funds. Disagreeing, I sent the
check back to them (immediately, and well within 60 days of
recieving it), instructing them that they should have also
put that money back into the Roth IRA, since it was interest
being generated from the money that was eventually
recharacterized, and to now do so.

Now they insist that $120 is correct taxable interest
income. They have told me this money is a 'courtesy to me'
for the delay in the recharacterization. They now also have
me listed as contributing the $120 to the Roth IRA for 2006.
I am retired and will have no earned income in 2006.
Therefore I cannot make any contributions to a Roth IRA for
2006.

All this is coming to light now because I sent them a long
letter of complaint about this and several other things in
May, and they called me to answer my complaints TODAY, 5
months later!! Needless to say, I am in the process of
transferring all of my funds to a different company that is
able to handle transactions quickly and efficiently. Boy
did that guy get an earful. Their web site doesn't even
have quarter end data up yet (21 days late!!) My advice is
to stay away from TIAA-CREF!!

1. Am I missing something here? Shouldn't that $120
correctly have been either rolled back into the Roth IRA or
retained in the IRA?

2. Since I can't get the company to change anything, what
should I do next? Should I leave the money there and send an
explanation to the IRS when I file my taxes, or should just
bite the bullet and take that 'excess' contribution (plus
interest earned to date) back out and include it as a
taxable income?

Thanks in advance.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >