27 June 2022 18:43

Requested to recharacterize 2013 IRA contributions. Broker insists I fill out a “Conversion” form. Is this normal?

Is recharacterization the same as conversion?

Conversion refers to the transition of a Traditional IRA to a Roth IRA, and recharacterization refers to changing a Roth IRA back into a Traditional IRA. Both of these actions involve specific rules and tax implications.

When must an IRA recharacterization be completed by?

The deadline for recharacterization is October 15 of the year following the year of your contribution. For example, if you contributed to a Roth IRA on April 1, 2021, your recharacterization deadline would be October 15, 2022 (the extended filing deadline for individual returns).

What does it mean to recharacterize IRA contributions?

To recharacterize a regular IRA contribution, you tell the trustee of the financial institution holding your IRA to transfer the amount of the contribution plus earnings to a different type of IRA (either a Roth or traditional) in a trustee-to-trustee transfer or to a different type of IRA with the same trustee.

Do I have to report IRA recharacterization on tax return?

If you recharacterized only part of the contribution, report the nondeductible traditional IRA portion of the remaining contribution, if any, on Form 8606, Part I. If you recharacterized the entire contribution, don’t report the contribution on Form 8606.

Are Recharacterizations still allowed?

In the past, it was legal to change your mind and recharacterize that Roth conversion back to a traditional IRA. However, the Tax Cuts and Jobs Act (TCJA) of 2017 banned recharacterizing the account balance of a Roth conversion back to a traditional IRA. 2 Now, Roth IRA conversions are irrevocable.

Is a backdoor Roth a conversion or recharacterization?

In 2017, the reversion of the backdoor Roth IRA (known as “recharacterization”) was banned. An individual must carefully consider whether it is more beneficial for them to hold a Roth IRA before processing the conversion. The Roth five-year rule applies to the money converted from a traditional to a Roth IRA.

What type of IRA recharacterization is acceptable?

A contribution to an IRA can be recharacterized as a contribution to a different IRA. This strategy is currently permissible, and you can recharacterize your Roth IRA contribution into a traditional IRA contribution and vice-versa, though specific deadlines apply.

What is a IRA conversion?

A Roth IRA conversion involves transferring retirement funds from a traditional-type IRA or 401(k) into a Roth account. The account holder must pay tax on the money they convert, but their withdrawals from the Roth account can be tax-free in the future.

Can I reverse an IRA conversion?

You can reverse a conversion

If the investments in your new Roth IRA lose value after the conversion, you’ll have an adverse tax outcome, because the taxable distribution from the conversion will still be based on the value of the account on the conversion date.

What are the tax consequences of a recharacterization?

Note: If you recharacterize a contribution made in the previous calendar year, it impacts your tax return even though the recharacterization activity will be reported on the next year’s Form 1099-R. You may need to file an amended return if you have already filed your tax return for that year.

How do I show recharacterization on my tax return?


  1. If you contributed or converted in 2020 and recharacterized in 2021. You’ll see an “R” in Box 7 of Form 1099-R. …
  2. If you contributed and then recharacterized, all in 2021. You’ll see an “N” in Box 7 of Form 1099-R.
  3. If you recharacterize a contribution in 2022.

How do I report IRA recharacterization in TurboTax?

Report recharacterization of Roth IRA?

  1. Login to your TurboTax Account.
  2. Click on “Search” on the top right and type “IRA contributions”
  3. Click on “Jump to IRA contributions”
  4. Select “Roth IRA”
  5. Answer “No” to “Is This a Repayment of a Retirement Distribution.
  6. Enter the Roth contribution amount.

Is backdoor Roth still allowed in 2022?

As of March 2022, the Backdoor Roth IRA is still alive. Therefore, any taxpayer making more than $214,000 in income and is married and filing jointly can make an after-tax Traditional IRA contribution and then potentially do a tax-free Roth IRA conversion.

How do I convert my IRA to a Roth without paying taxes?

Bottom Line. If you want to do a Roth IRA conversion without losing money to income taxes, you should first try to do it by rolling your existing IRA accounts into your employer 401(k) plan, then converting non-deductible IRA contributions going forward.

Do you have to pay taxes on an IRA conversion?

If you do a Roth IRA conversion, you’ll owe income tax on the entire amount that you convert—and it could be significant. If you’ll be in a higher tax bracket in retirement, the long-term benefits can outweigh any tax that you pay for the conversion now.

Does Roth conversion affect Social Security?

The year you do a Roth conversion, your taxable income will rise, which could cause a portion of your Social Security benefit to be taxed or push you into a situation where more of your benefit is taxed.

How much tax will I pay if I convert my IRA to a Roth?

When you convert tax-deferred money from the traditional IRA to the Roth IRA, you’d pay taxes on the amount converted as if it were taxable ordinary income. The taxable portion converted would be considered income for the tax year in which the conversion occurred.

Is a Roth IRA conversion worth it?

A Roth IRA conversion can be a very powerful tool for your retirement. If your taxes rise because of increases in marginal tax rates—or because you earn more, putting you in a higher tax bracket—then a Roth IRA conversion can save you considerable money in taxes over the long term.

How do I avoid underpayment penalty on Roth conversion?

Quote: If they paid at least 90 percent of the tax for the current. Year. Or they paid at least 100 of the tax shown on their return for the prior.

Can you still convert traditional IRA to Roth in 2021?

On April 5, you could convert your traditional IRA to a Roth IRA. However, the conversion can’t be reported on your 2021 taxes. Because IRA conversions are only reported during the calendar year, you should report it in 2022.

Will backdoor Roth be eliminated?

Instead, those clients often fund a traditional IRA and convert the traditional IRA to a Roth. This strategy has become known as the backdoor Roth IRA strategy. While the legislation has not become law, the Build Back Better Act was set to eliminate the backdoor Roth IRA strategy as of Jan. 1, 2022.

Is Mega Backdoor Roth going away?

Like the Backdoor Roth IRA, the “Mega” Backdoor Roth also got a reprieve in 2021, but its future is uncertain. The Mega Backdoor Roth is a 401(k) plan version of the Backdoor Roth IRA. It only works if your 401(k) plan allows for after-tax contributions and in-service distributions of after-tax funds.