Recharacterization of Roth to Traditional IRA

For 2008, my wife and I are filing married jointly. My income surpass the income limit of 169,000, so we need to recharacterized my Roth IRA to traditional IRA. I have also contributed $5000 for spousal Roth IRA, does my wife's Roth IRA needed to be recharacterized also to traditional IRA?

Knemarx2,

Yes, your wife's ROTH IRA contribution will need to be recharacterized as will your contribution.
You are filing a joint return, and the MAGI is the same for the taxpayer and the spouse.

Thanks, does the recharacterization need to be traditional deductible or non-deductible IRA? I am planning to convert this recharacterized traditional IRA back to Roth in 2010.

Knemarx2,

If you are planning to convert this to a ROTH IRA next year (2010), coming from a 2009 Deductable IRA would allow you to target just this money.

If you have other deductable IRAs, and a 2009 non-deductable IRA, you will have to pro-rate the deductable and non deductable money when you do your 2010 conversion.

An example may help here: You have $4,500 in your ROTH IRA now that you recharacterize to a non-deductable IRA. You also have deductable IRAs in the amount of$27,000. Because the IRS considers all of your traditional IRAs (both deductable and non-deductable) as one IRA when you do the conversion to a ROTH IRA, you need to consider the non-deductable vs the deductable amount. If you wanted to convert $4,500 to a ROTH IRA, you would convert 80% of that amount would come from your deductable IRAs and 20% from your non-deductable. You would pay tax on 80% of the amount you convert. The 20% would convert tax free.

Note this is a simplified example and does not take into account any gains or losses that may occurr between the Recharacterization and the conversion.

Depending on what other IRAs you have may make a difference on which type of IRA you want to recharacterize into.