Writer Unhappy About Recharacterization Earnings Calculation

2. In conjunction with a recharacterization of 450 shares of AT&T on October 31, 2000, Fidelity Investments moved certain other funds from my Roth IRA to my Rollover IRA thereby subjecting me to double taxation on the amount of those funds, i.e., in addition to the 450 shares of AT&T, Fidelity moved the following funds: (1) approximately $2,000 of a $16,000 Certificate of Deposit (CD) with the First Capital Bank of Georgia (11/3/99 - 11/3/00) (6.25%), (2) approximately $125 of the approximate $1000 interest earned on this CD, and (3) approximately $900 which represents the majority of my Janus fund (JAGIX). These Roth IRA funds represent money for which I have either already paid federal income taxes or am in the process of paying such taxes for the years 1998-2001. Fidelity's action represents a penalty in that when I eventually withdraw these funds from my Rollover IRA, I will have to pay ordinary income taxes again on the same money at the 28% rate (approximately $800). In other words, I will be taxed twice. There should be no such tax penalty for requesting a simple recharacterization of 450 shares of AT&T, simply because those shares dropped in value during the conversion period of five (5) months. The "old method" of calculating net income, mentioned in the above reference, results in no such penalty because it did not reflect losses of the IPA during the time it held the contribution whereas the "new method" does.

Wesley E. Kidd II