Roth Re-characterization

Roth re-characterization is a method a transferring a Roth back to a IRA after a Roth Conversion.

Be aware that a Roth conversion that is undone, the tax free gains will be transferred back to a traditional IRA, thereby becomes taxable IRA at time of withdrawal from the IRA.

Re-characterization allows the tax bill to be eliminated so that no tax is paid on value that no longer exists.

Caution: Make sure you transfer the correct amount back into the IRA. This is simple if only to one account and the entire amount had been converted. The entire Roth balance gets transferred back and the taxes on the conversion are eliminated.

The calculation gets a bit trickier if there is a partial re-characterization especially if the Roth included funds from a prior year conversion or contributions. A re-characterization includes net income attributable to the amount being re-characterized.

I suggest you seek good tax advice before attempting a Roth Re-characterization.

Daniel Iuculano

Financial Planner