I contributed $5500 to a new Traditional IRA earlier this year. Since I did not have a 401(k) at work, it would have been deductible. However, now I am getting a 401(k), and my income is over the deductibility limit. I am still under the Roth contribution income limits though, so I can recharacterize. If the Traditional IRA has since grown to $6000, is the $500 gain taxable as income when I recharacterize?
NOTE: I know conversion is an option too (treating the initial contribution as non-deductible Traditional IRA), but in that case I know I'd be taxed on the $500 gain, plus I have another, much larger Traditional IRA with all pre-tax money, so nearly all of my conversion would be taxable.