I transferred stock to constitute an IRA to Roth conversion of $89K. I want to partial recharacterize $6K of that transfer. How many shares do I need to transfer back?

[sshurtz]

I transferred 538 shares of X stock, 1997 shares of Y stock and 304 shares of Z stock on 12/21/17 from my IRA to my Roth IRA to constitute a $89,127.85 IRA to Roth conversion.  The end of day value of my Roth account on 12/21/17 was $271,895.67.  I now realize I would be better off tax wise if I had only converted $83,346.85, and want to recharacterize $6,781.  The value of my Roth account today is $290,856.34.  I want to have the custodian transfer shares of Y company stock back to the IRA to accomplish the partial recharacterization.  If the price of Y shares on the day of the original transfer was $8.74/share, and the price today is $8.95/share, how many shares of Y company stock do I need to have the custodian transfer between accounts to effect a $6,781 recharacterization?

[dmertz · Accepted solution]

The IRS has made it explicit that conversions of 2017 distributions can still be recharacterized.

As I interpret your question, your account is now worth $290,856.34 / $271,895.67 = 1.069735 times what is was worth immediately following the conversion and you made no other contributions to or distributions from the Roth IRA after the conversion contribution to the Roth IRA.

I think you meant to say that you want to recharacterize $89,127.85 - $83,346.85 = $5,781 of the original conversion (not $6,781).  To recharacterize $5,781 back to the traditional IRA, shares worth $5,781 * 1.069735 = $6,184.14 need to be transferred back.  If that is to all be in the form of Y company stock presently valued at $8.95/share, that would mean transferring back 690.9652 shares.

Of course the numbers change with the share prices on a daily basis, so, as Hal_Al said, the calculation really needs to be done by the custodian if you want an accurate recharacterization of $5,781.  If you specify the number of shares yourself, you might get close but the actual amount recharacterized will be something more or less since Y company shares are not the only shares determining the Roth IRA balance.

It's rather irresponsible of the custodian not to do the calculation.  It's a matter of tax law, not a tax question.  Most IRA custodians do the calculation for you.

[Hal_Al]

You need to ask your custodian that question. You probably will not be able to do an exact $ amount.

You have an even more important question to ask your custodian: will you even  be allowed to do a re-characterization?

Part of the new tax law eliminated the ability to re-characterize a conversion after 1-1-18. There's some debate whether that applies to 2017 conversions, but the majority of opinions say it does.

Please let us know what they say.

[sshurtz]

I asked the custodian, and was told they would not calculate the amount, because that was a tax question.  So I am still looking for an answer.

[sshurtz]

The following IRS document seems to answer the question in the affirmative that the law change does not prohibit recharacterizations of 2017 conversions, as long as they are performed by Oct 2018. <a rel="nofollow" target="_blank" href="https://www.irs.gov/retirement-plans/ira-faqs-recharacterization-of-ira-contributions">https://www.i...>