An IRA recharacterization treats a contribution made to one type of IRA as having been made to a different type of IRA. A traditional IRA contribution can be recharacterized to a Roth IRA, or a Roth IRA to a traditional IRA.
Generally, you tell the trustee of the financial institution holding the IRA where you made the contribution to transfer the amount to a second IRA.
Types of recharacterizations:
- A regular, annual contribution to a traditional IRA can be recharacterized as a contribution to a Roth IRA.
- A regular, annual contribution to a Roth IRA can be recharacterized as a traditional IRA contribution.
If you recharacterize your contribution, you must do all of the following:
- The transfer amount must include any earnings or losses on the original contribution amount.
- The transfer must be made by the due date of your return (including extensions) for the tax year you made the contribution.
- Report the recharacterization on your tax return for the year during which the contribution was made.
- Use the original date of the contribution (not the date the contribution was recharacterized).
The tax consequences of the contribution are determined by the type of IRA you hold after the recharacterization.
