Recharacterization: What Amount Goes On The Form?

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

You are going to see a lot of information on the recharacterization deadline for 2010 Roth conversions, which is rapidly approaching, so you should be able to figure out what you need to do to accomplish a recharacterization. (If you do need more information, check out IRS Publication 590 available at www.irs.gov.)

I want to answer the most crucial question for you, the one that confuses many people, and the one that is left out of most articles. When the form says how much do you want to recharacterize, what do you put down?

Do you use the amount the assets are worth now? Do you use the amount that you want to send back to the IRA? Do you use the amount you originally converted? This last one is the correct answer.

If you converted $50,000 and today it is worth $35,000 or today it is worth $90,000, you put down that you want to recharacterize $50,000 on the recharacterization form. Then a net income calculation is completed and gains or losses are attributed to the $50,000. The net amount is then transferred back to a traditional IRA.

For a partial recharacterization, you again put down the amount you want to recharacterize. After the net income calculation and the attribution of gains or losses in the account, a net amount is transferred back to a traditional IRA.

In its Publication 590, IRS suggests that the IRA custodian should do the net income calculation. Many custodians will not. If your custodian is one that will not do the calculation, you can use the formula IRS provides in Publication 590.

It is always a good idea to consult with your financial advisor or tax professional before doing a recharacterization. You need to get it right the first time. You can find an Ed Slott trained advisor on our website. Click on Find an Advisor.