3609. Can an individual correct a Roth conversion? What is a recharacterization?Nuco Employeercline212014-06-03T20:12:00Z2014-06-03T20:12:00Z23441962Albany Law School164230214Site Map/Individual Retirement Plans/Roth IRA/ContributionsSite Map/Individual Retirement Plans/Traditional IRA/Contributionsindividual retirement account annuity2005-01-25T00:00:00ZTaxFactsDefaultArticle114750222-00-tf1.xml223.00;#1808;#1817;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1Can an individual roll over or convert a traditional IRA or other eligible retirement plan into a Roth IRA?
76800.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-19T08:10:59Z3609. Can an individual correct a Roth conversion? What is a recharacterization?If a taxpayer has rolled over funds from a traditional IRA or other eligible retirement plan to a Roth IRA during the taxable year, and later discovers that his or her AGI is in excess of $100,000 in a year before 2010 (or for any other reason wants the transaction undone), the taxpayer generally has until the due date for filing his or her return (including extensions) to correct such a conversion without penalty, to the extent all earnings and income allocable to the conversion are also transferred back to the original IRA, and no deduction had been allowed with respect to the original conversion.IRC Sec. 408A(d)(6); Notice 2008-30, 2008-1 CB 638, A-5. This “recharacterization” in the form of a trustee-to-trustee transfer results in the recharacterized contribution being treated as a contribution made to the transferee IRA, instead of to the transferor IRA.See Treas. Reg. §1.408A-5. A taxpayer can apply to the IRS for relief from the time limit for making a recharacterization.See Let. Ruls. 200234073, 200213030.For purposes of a recharacterized contribution, the net income attributable to a contribution made to an IRA is determined by allocating to the contribution a pro-rata portion of the earnings or losses accrued by the IRA during the period the IRA held the contribution. This allows the taxpayer to claim any net income that is a negative amount.Treas. Reg. §1.408A-5; Notice 2000-39, 2000-2 CB 132.A time restriction is placed on reconversions (i.e., converting to a Roth IRA a second time after recharacterizing a first conversion). A person can reconvert back to a Roth IRA but only after the later of the beginning of the next year or thirty days after the recharacterization.Treas. Reg. §1.408A-5, A-9.Planning Point: Where the value of converted property drops after a conversion to a Roth IRA, it may be useful to recharacterize the contribution back to the other type of IRA and then reconvert to a Roth IRA to reduce the amount taxable on converting to a Roth IRA. The time restriction on reconversions reduces, but does not eliminate, the potential value of this technique.Reconversions and recharacterizations must be reported to IRS on Form 1099-R and Form 5498. Prior year recharacterizations must be reported under separate codes. All recharacterized contributions received by an IRA in the same year are permitted to be totaled and reported on a single Form 5498.Notice 2000-30, 2000-1 CB 1266.