I had $15,000 in an IRA in 2000 that was converted to a Roth when the market peaked. Now it is worth $9000. But I am liable for the income tax on the value of the IRA at the time of the rollover--$15,000. How can I reduce my liability?
For 2000 year returns, many folks are in the same position. But Uncle Sam allows you to "recharacterize" the conversion. That means simply that you have until Oct. 15, 2001 to switch anything you rolled into a Roth in 2000 into a traditional IRA. If you convert back, you must wait at least 30 days before you can reconvert to a Roth. In your case, this means that you will be taxed only on the $9,000 (or whatever the value of the IRA is at the time of the rollover to the Roth).
The downside: recharacterization rules only allow one Roth conversion a year.
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