IRA Recharacterization 

 

What is an IRA Recharacterization? 

A recharacterization is when an IRA contribution is transferred from the current IRA to an IRA of a different type.  

Common recharacterizations include:  

  • Traditional to Roth 
  • Roth to traditional 

 

Why would I perform a recharacterization? 

In some situations, recharacterizations may help you avoid making withdrawals from an IRA if you didn’t meet contribution eligibility requirements. 

Examples: 

  • You can recharacterize Roth contributions to a traditional IRA if you discover that you are above income limits to contribute to a Roth.  
  • If you're not eligible to deduct your traditional IRA contributions on your income taxes, you can recharacterize traditional contributions to a Roth IRA. 

  

Tax considerations and reporting 

Following a recharacterization, you’ll receive a Form 1099-R that shows the withdrawal from the account that received the original contribution. You’ll also receive two Form 5498s - one for the account that received the original contribution and one for the account that the recharacterized funds were placed into.  

 

Request deadline 

IRA recharacterizations must be completed by your tax filing deadline, including extensions, this is usually October 15.  

Due to the high volume of requests received toward the tax filing deadline, we can’t guarantee that recharacterizations requested after October 1 will be completed.  

Please request your recharacterization prior to October 1. 

 

Recharacterizations at M1 

The following information is required for a recharacterization: 

  • Receiving account number 
  • Delivering account number 
  • Contribution amount 
  • Net income attributable (NIA) to the contribution amount 
  • Contribution year (2020 or 2021)

If you’d like to recharacterize contributions from 2020 and 2021, please provide the contribution amounts and NIA from the 2020 and 2021 contributions separately.  

Securities are not eligible for recharacterization. So, the contribution amount plus any NIA must be in cash for a recharacterization to be processed.  

Once our team receives the appropriate information, it usually takes three business days to process your recharacterization. Processing times may increase during periods of high volume, including at the end of the calendar year and when tax filing deadlines approach.  

 

M1 is unable to advise if an IRA recharacterization is right for you 

Please consult a qualified financial professional with any questions you have about additional tax implications or filing your taxes. We recommend speaking with a qualified financial professional before requesting an IRA recharacterization. 

 

To request a recharacterization of a traditional IRA contribution into a Roth IRA or a Roth IRA contribution into a traditional IRA, please contact us.

 

 

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