Retirement

No more recharacterization of IRA conversions

DATE | 11/19/18
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A recharacterization allows you to treat a regular contribution made to a Roth IRA or to a Traditional IRA as having been made to the other type of IRA. A “regular contribution” is the annual contribution you’re allowed to make to a Traditional or Roth IRA, including age 50 catch-up if applicable.

Prior to 2018, individuals were also allowed to recharacterize IRA conversions and employer retirement account taxable rollovers into a Roth IRA.

Effective January 1, 2018—pursuant to the Tax Cuts and Jobs Act (Pub. L. No. 115-97)—a conversion from a Traditional, SEP, or SIMPLE IRA to a Roth IRA cannot be recharacterized. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as a 403(b) or 401(k) plan.

For example, if you convert $50,000 from a Traditional IRA to a Roth IRA in 2018 and find that is not tax advantageous for you, you will NOT able to recharacterize any of the converted amount back to a Traditional IRA as you could prior to the Tax Cuts and Jobs Act. The conversion is taxable, and you will receive a 1099-R to file with your 2018 tax return. The same is true for a taxable rollover from a pretax employer plan such as the 403(b) plan. You are no longer allowed to recharacterize the taxable rollover monies to a Traditional IRA.

Questions? Call us at 1-800-279-4030, or contact your tax advisor.