What Is Recharacterization?

Recharacterization is a tax-planning strategy used by investors to change the type of an investment account from one that is taxed at a higher rate to one that is taxed at a lower rate. For example, an investor could recharacterize a traditional IRA into a Roth IRA. The recharacterization must be done within a certain time frame set by the IRS, and the investor must notify the financial institution where the account is held of the recharacterization.

Is a recharacterization the same as a rollover?

A recharacterization is when you change the type of IRA that you have. For example, you may have a traditional IRA and want to change it to a Roth IRA. A rollover is when you move the money from one IRA to another. For example, you may have an IRA with one company and want to move it to an IRA with another company. How do I report IRA recharacterization on my tax return? If you recharacterized your traditional IRA contribution as a Roth IRA contribution, you will need to report this on your tax return. The contribution will be reported on Form 8606, and the recharacterization will be reported on Form 1040. Can you recharacterize IRA twice? Yes, you can recharacterize IRA twice. However, you can only do so if you have not yet reached the age of 70 1/2. If you have already reached that age, you will not be able to recharacterize your IRA. What is the difference between IRA conversion and recharacterization? The main difference between an IRA conversion and a recharacterization is that a conversion is a permanent change, while a recharacterization is a temporary change. With a conversion, you convert all or part of your traditional IRA into a Roth IRA. With a recharacterization, you change all or part of your Roth IRA back into a traditional IRA. Can you recharacterize a 401k to Roth? Yes, you can recharacterize a 401k to Roth.