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After getting some good answers to my earlier question, and doing some of my own research, I asked my broker to help me recharacterize my 2013 Traditional IRA contributions as Roth contributions. After a few back-and-forths between me, him, and the IRA trustee, he has relayed that I must fill out a "Conversion" form. According to the trustee, they have a "Recharacterization" form, but it is used to correct Roth contributions as Traditional contributions.

There is a spot on the form to specify NOT to withhold income tax. However, my fear is that the trustee will report the recharacterization as income in 2014.

Does the use of a conversion form for a recharacterization sound normal?

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For the broker it may be the same, since the actual act of recharacterization requires you to withdraw the money from one account and put it into the other. The specifics of withdrawing from Roth for re-characterization may be warranting a special procedure for them, but from Traditional to Roth - they're blind to whether it is conversion or re-characterization.

The one who's not blind to it is you. According to the IRS, in order to re-characterize, all you need is to do the conversion before the tax return due date (+ extensions), i.e.: before April 15th, or if you submitted the form 4868 in a timely manner, October 15th next year (after the year to which the deposit is attributed, so in your case - it is October 15th, 2014).

To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. If the transfer is made by the due date (including extensions) for your tax return for the tax year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. If you recharacterize your contribution, you must do all three of the following.

  • Include in the transfer any net income allocable to the contribution. If there was a loss, the net income you must transfer may be a negative amount.

  • Report the recharacterization on your tax return for the year during which the contribution was made.

  • Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA.

You should ask the broker, however, to have the recharacterized amount to appear on the form 5498 for the new contribution.

  • Is there anything I can do to protect myself in case the trustee reports the transfer as a Roth conversion, and therefore taxable income? – Sam Jones Mar 11 '14 at 20:36
  • @Sam the trustee can report whatever he wants, in the end you're in your right and if IRS want something from you - you have all the documentation to show that it is in fact a recharacterization. – littleadv Mar 11 '14 at 22:12

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