Not All Recharacterizations Have Gone Away

You may recall that the ability to recharacterize a Roth IRA conversion went away as part of the tax cut that passed in 2017. It wasn’t a major sticking point of the legislation, but it did create some concern about how it could affect those saving for retirement. However, I want to remind you that only recharacterization of Roth IRA conversions went away and that the ability to recharacterize other types of transactions still remains a possibility. For example, if you made a Roth IRA contribution but did not realize that you were above the income threshold to do so, you could potentially recharacterize that contribution to that of a traditional IRA. Obviously, you will want to avoid situations like the aforementioned example, but they do happen often enough to be discussed. Recharacterizations can be tricky and involve and in-depth understanding of how they work. If you think you may have mistakenly made an IRA contribution, then you will want to speak with your IRA custodian. Be sure to provide them with information regarding the transaction you want to recharacterize (i.e. amount of contribution, when it was conducted, etc.). Once they have that information they can find the amount and properly process it as a recharacterization. If you are considering a recharacterization or are unsure of whether a contribution you made should be recharacterized, you will first want to speak with a certified financial planner or wealth manager to make sure you actually can do a recharacterization. From there you can then move forward with the transaction.