The IRS has given you the prerogative to change your mind—when it comes to your IRA contributions, that is.
What a recharacterization is
Generally speaking, a recharacterization moves money from a traditional IRA to a Roth IRA—or vice versa. More specifically, it changes the designation of a specific contribution from one type of IRA to the other.
Recharacterizations are tax-reportable and could be complicated. We recommend that you review this strategy with a qualified tax advisor to weigh the tax benefits and ensure everything is reported properly.
Why you might recharacterize an IRA contribution
To change a contribution from a traditional IRA to a Roth IRA
You may have contributed to a traditional IRA because you thought your income was going to be too high to be eligible for a Roth IRA contribution. But if your income ended up being lower than you expected, you may prefer to take advantage of the Roth IRA.
A recharacterization lets you move that year's contribution to a Roth IRA, which offers the ability to take tax-free withdrawals in retirement.*
To change a contribution from a Roth IRA to a traditional IRA
You may have contributed to a Roth IRA, but while preparing your tax return, you realize that either:
- Your income was too high to qualify for a full Roth contribution.
- You'd benefit more from an immediate tax deduction on a traditional IRA contribution.
A recharacterization lets you move that year's contribution—in whole or in part—to a traditional IRA.
When to complete your IRA contribution recharacterization
Your contribution must be recharacterized on or before your tax-filing deadline for the year for which it was made.
The IRS generally provides an extended time frame—until October 15—to complete your recharacterization. (You may be required to file an amended return at that time.)
How are recharacterization earnings/loss calculated?
Vanguard has adopted the method set forth in IRS Notice 2000-39 and Proposed Regulations 1.408-11 to calculate the earnings or losses for a recharacterization.
The calculations are based on ALL assets in your IRA plan, not just the fund contributed to. For partial recharacterization, the client may choose the date(s) of the original contribution that they would like to be used in the calculation for earnings/loss.
Additional information and examples can be found at irs.gov under IRS Publication 590-A, Contributions to an IRA. For a more detailed explanation of publication 590-A and examples of how to calculate your own earnings or loss please visit the IRS website at:
A chart to help with earnings/loss calculation can be found on that webpage under "Worksheet 1-3. Determining the Amount of Net Income Due to an IRA Contribution and Total Amount to be Recharacterized"
How to request a recharacterization
You can complete most recharacterization using the IRA Recharacterization Form below. Or you can call one of our experienced retirement specialist at 800-205-6189 for live help.
Remember, a Roth conversion completed after December 31, 2017, can no longer be recharacterized back to a traditional IRA later.
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