Recharacterization

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Recharacterization

The reversal of a traditional IRA contribution or conversion into a Roth IRA, or vice versa.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

Recharacterization

Recharacterization is the process of changing the character of a traditional IRA contribution to a Roth IRA contribution or vice versa.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary
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