Roth IRA Recharacterization: Understanding the Process & Implications

After you go through a Roth IRA conversion, the IRS will allow you to utilize a process called recharacterization. Here are the basics of recharacterization.

Recharacterization

The process of recharacterization occurs when an investor has converted to a Roth IRA and then wants to convert back to a traditional IRA. If an investor decides that the tax structure is not to his liking, he can decide to recharacterize part of the assets in his Roth IRA back to the regular IRA format. He can also convert the entire account back if he wishes.

Rules

In order to complete a recharacterization, you will have to abide by the rules set forth by the IRS. You will need to notify the IRS of the amount and type of assets that you will be recharacterizing back to the old format. You will also need to let them know when the original conversion took place. You will then need to notify the trustee of your decision to recharacterize and let the trustee know that they need to conduct the proper transfer. If you decide that you want to change back to the Roth IRA structure, you will have to wait at least 30 days to do so.