Roth Conversion that should have been a Recharacterization

Submitted by Kevin O'Hearn on Wed, 2020-02-05 13:37

Hello, I have a client who did a Roth conversion from their Traditional IRA on 12/06/19. The client was ineligible to contribute to a IRA last year as deductible and it seems this request should have been processed as a Recharacterization to the ROTH IRA instead. How could this be corrected and what steps would be needed to do so? Any feedback would be greatly appreciated. Thank you.



Submitted by Alan - IRA critic on Wed, 2020-02-05 15:25

  • If client has no other pre tax IRA assets, just the non deductible 2019 contribution, the conversion will be non taxable (except for any earnings on the contribution), and client has just done a back door Roth. Otherwise the conversion will be mostly taxable due to pro rating. However, conversions can no longer be recharacterized and therefore the client is stuck with the tax bill.
  • However, if there is clear evidence that the client requested a recharacterization and not a conversion, pressure can be applied to the custodian to correct the custodian error. Note that the custodian will resist, so the custodian will have to be 100% responsible to have any chance of them re doing the transaction. Confusing recharacterization with conversions pops up pretty often.

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