Roth IRA recharacterization complication
Converted 3000 shares on 11/20/2017 from traditional to Roth IRA with a value of $53,900. Then converted 3949 share on 2/6/2018 into the same account. Requested recharacterization of 11/20/2017 value due to a drop in value of the shares. Due to NIA calculation the custodian moved more than 3000 shares back to the traditional IRA. I know now that if the two conversion were done into separate Roth IRA accounts there would be no issue in moving the same 3000 shares back. My question I do not know the answer to is this — since 2018 conversions cannot be recharacterized is it even possible to use some of those shares even if they are in the same account to effect the 2017 recharacterization?
Permalink Submitted by David Mertz on Fri, 2018-04-20 15:19
There is nothing wrong with this. The shares moved in the recharacterization have no ties to the shares that were originally converted. Recharacterizations are done in dollar amounts. The number of shares moved to the traditional IRA simply represents the dollar value the needed to be moved to accomplish the recharacterization. It’s no different than if the shares were sold in the Roth IRA, the cash was moved to the traditional IRA, and then the shares were repurchased in the traditional IRA.
Permalink Submitted by Alan - IRA critic on Fri, 2018-04-20 15:26
Yes, ANY holding in the Roth IRA can be transferred in a recharcterization. The situation is somewhat simpler to understand if you ignore individual holdings and shares. In determining the dollar amount to be transferred back to the TIRA the total change in value of the Roth during the time the conversion remains in the Roth determines the dollar value that must be transferred to the TIRA. Once that dollar amount is determined, you can use any shares you wish for transfer as long as the values on the date of recharacterization add up to the dollar amount. Note that the net income attributable formula calls for the Feb conversion to be added to the opening balance of the Roth when the Nov conversion was done. The actual closing balance is not adjusted, so the % gain or loss on the Nov conversion treats the Feb conversion amount as being in the Roth on 11/20. When you have an overall loss in the Roth IRA, the amount transferred to the TIRA will be less than the Nov conversion, but it may take more shares to produce the required dollar amount to transfer.