Recharacterization

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Recharacterization

The reversal of a traditional IRA contribution or conversion into a Roth IRA, or vice versa.

Recharacterization

In IRAs, the act of making a contribution to a certain account, then deciding to apply the contribution to a different type of IRA. For example, if one has both a traditional IRA and a Roth IRA, one may make a contribution to the traditional account, then decide that it would be more beneficial to apply the contribution to the Roth account. Recharacterization is subject to certain rules. Primarily, one may not recharacterize tax-free rollovers or employer contributions.

Recharacterization.

When you have converted one type of individual retirement account (IRA) to another type -- such as a traditional IRA to a Roth IRA -- and then convert it back to the original type, you are recharacterizing the IRA.

Similarly, you can recharacterize a contribution you've made to one type of IRA as a contribution to another type of IRA. In either case, when the recharacterization is handled correctly, the original conversion or contribution is erased, as if it never happened. To be valid, a recharacterization must be handled as a transfer between IRA providers or internally by a single provider.

Further, it must be completed before the date your tax return is due, including extensions. You must also report the action to the IRS, and in some cases, you must file an additional form.

Recharacterization

Recharacterization is the process of changing the character of a traditional IRA contribution to a Roth IRA contribution or vice versa.
References in periodicals archive ?
See Katanga Decision on Regulation 55, supra note 6, [paragraph] 26 ("The recharacterisation .
arguing that "in giving notice of their intention to consider a recharacterisation within the meaning of regulation 55," the Trial Chamber should "provide[] at the same time adequate information as to the factual and legal scope of that change").
On February 6, 2015, TEI submitted comments to the OECD regarding its BEPS public discussion draft entitled BEPS Actions 8,9 and 10: Revisions to Chapter I of the Transfer Pricing Guidelines (Including Risk, Recharacterisation, and Special Measures).
Pursuant to Actions 8-10 of the Plan, on December 1, 2014 the OECD published a public discussion draft entitled BEPS Actions 8, 9, and 10: Discussion Draft on Revisions to Chapter I of the Transfer Pricing Guidelines (Including Risk, Recharacterisation, and Special Measures) (hereinafter the Discussion Draft or Draft).
With respect to the example in paragraph 6 of the Discussion Draft, it is TEI's view that the example does not properly illustrate the OECD's message regarding non-recognition/ recharacterisation.
While the Discussion Draft takes pains to note that a transaction engaged in by associated enterprises that does not, or only very rarely, occurs between unrelated parties, should not be recharacterised for that reason, the Draft nevertheless conveys the message that unusual transactions or business models may be evidence of tax avoidance schemes subject to recharacterisation.
We also note that the modifications proposed in Options I and J potentially go beyond the changes to the PE definition and reach into other areas, such as recharacterisation of contracts and business structures that may be considered abusive and transfer pricing issues between related entities.
TEI commends the OECD for producing targeted rules that are generally precise, which is preferred to a recharacterisation approach or an anti-abuse rule.
Further, the OECD's Business Restructuring Project extensively addressed the question of recharacterisation and resulted in paragraphs 9.
fails to provide an analytical framework through which taxpayers may determine (and their financial statement auditors may confirm) whether the restructuring (or post-restructuring controlled transactions) will be safe from recharacterisation or adjustments; and
Recharacterisation or Non-Recognition of Restructuring Transactions