What's the difference between a conversion and a recharacterization?
by TurboTax•168• Updated 1 week ago
Taxpayers can move all or part of their traditional IRA balance to a Roth IRA. These conversions are treated as a rollover, moving an amount from one retirement account to another, except a conversion to a Roth IRA has an impact on your taxes.
Typically, most or all of the amount is taxable. There's almost always a time limit of 60 days to complete a conversion or rollover, with large penalties if the limit isn't met.
Taxpayers sometimes change their minds after making contributions to an IRA, or contributions or a conversion to a Roth IRA. Tax rules allow taxpayers to recharacterize their IRA contributions any time prior to the due date, including extensions, of their tax return. A recharacterization allows you to undo/reverse your rollover or contribution.
- Think of IRA conversions as allowing you to transfer funds from a non-Roth IRA account into a Roth IRA account, often with a taxable impact.
- Think of IRA recharacterizations as a set of special rules allowing you to change your mind about the type of your current year IRA contribution. As a result of the Tax Reform Act, beginning with 2018, recharacterization of a Roth conversion is not allowed.
More like this
- What are IRA recharacterizations?by TurboTax•552•Updated 1 week ago
- What's the difference between TurboTax Online and the mobile app?by TurboTax•350•Updated 1 week ago
- What's the difference between self-employment income and other income?by TurboTax•1328•Updated 1 week ago
- What's the difference between an Intuit account and a TurboTax account?by TurboTax•33113•Updated 1 week ago