I re-characterized my 2015 Roth IRA contributions as traditional, non-deductible IRA contributions. I would now like to convert all my traditional contributions to Roth IRA. How long do I have to wait before I convert? Some sources seem to suggest there is no waiting period, but some sources say there is a 30 day waiting period.
This area uses very particular terms, I bolded those.
Scenario 0 (not yours): you contribute to a traditional IRA in non-deductible mode (for some reason, e.g. your income is too high to qualify for a normal IRA or Roth). You mean to do a Backdoor Roth. You can convert to Roth immediately.
Scenario 1: you contribute to a Roth, not realizing you are not allowed to do that. You want to recharacterize it as a Non-deductible IRA, which does not have income limits. Do that ASAP if you are still in time limits to do so.
Scenario 2: having been through Scenario 1, you now want to exploit the Backdoor Roth and convert that "ND trad IRA" to Roth. IRS is surprisingly tight-lipped about this situation. The closest thing I could find is this distant relation, which says wait til the next tax year, or 30 days, whichever is greater (see 4th question). It's rare for the IRS to feel strongly about tax law, but it seems like they do not like the Roth backdoor.
That makes a certain amount of sense, since it is IRS doctrine that if you purposefully do a series of actions A B and C which have the same effect as action X... then you really did action X, and should be treated as such: Actions A-C amount to structuring action X. IRS considers the Roth limits and recharacterization rules to be solidly established in law... And the Roth conversion without income limits to be not well established in law, subject to rescindment and/or legal interpretation at any time. So my concern is, if I'm in tax court, I could find myself "making new law" (ie case law) and I'd want to be as grounded in existing tax law as possible.
You wrote "I would now like to re-characterize all my traditional contributions as Roth contributions."
I think you mean convert to Roth, right? You need to wait 30 days.
Each year, I convert IRA money to Roth. Then in March, when I'm doing my MIL's taxes, I recharacterize to put her taxable income right at the 15/25% line. 30 days later, it gets converted again.
Edit - I updated to 30 days, I was thinking about something else. A conversion is when you take Traditional IRA funds and convert to a Roth IRA. One would do this for many reasons, mine would be to "top off" my MIL's tax bracket each year.
Recharacterization is taking some or all of that conversion and reversing it, backing it out. This can be for multiple reasons -
- you overshot the goal, and will be taxed in the next bracket.
- the assets converted have dropped in price, why pay tax on $10,000 when that asset is now worth $6000?
- you changed your mind (it happens)
There is no waiting period. You can convert immediately.
The 30-days you may have heard of is probably from the restrictions on reconversions (converting from Traditional to Roth, re-characterizing to undo the conversion, and then converting from Traditional to Roth again), in which case you have to wait until 30 days after the undoing recharacterization, or until the year after the first conversion, whichever is later. There is no reconversion here (you did not recharacterize to undo any conversion); it is not relevant to your situation.