Recharacterization of a contribution
Hello:
Is there any clear cut ruling on recharacterizing multiple times (a contribution) if a client changes their mind a couple times in the allowed timeframe?
Thanks.
Hello:
Is there any clear cut ruling on recharacterizing multiple times (a contribution) if a client changes their mind a couple times in the allowed timeframe?
Thanks.
Permalink Submitted by Alan Spross on Tue, 2012-07-31 16:36
No, that cannot be done. Here is a copy of IRS Reg 1.408A-5, Q 4:
>>>>>>>>>>>>>>>>
Q–4. Can an amount contributed to an IRA in a tax-free transfer be recharacterized under A–1 of this section?
A–4. No. If an amount is contributed to the FIRST IRA in a tax-free transfer, the amount cannot be recharacterized as a contribution to the SECOND IRA under A–1 of this section. However, if an amount is erroneously rolled over or transferred from a traditional IRA to a SIMPLE IRA, the contribution can subsequently be recharacterized as a contribution to another traditional IRA.
>>>>>>>>>>>>>>
A regular contribution recharacterized as a different type of IRA contribution (eg TIRA to Roth or vice versa), cannot be recharacterized back to the original choice. There are exceptions for conversion contributions which can be recharacterized and then reconverted subject to the waiting period. There is also the SIMPLE IRA correction cited above where a disallowed recharacterization can be corrected.
It is also possible to recharacterize a contribution after numerous tax free transfers that are not recharacterizations. For example, a TIRA contribution is made and then transferred with earnings to a new TIRA custodian. The contribution can still be recharacterized as a Roth IRA contribution.