Recharacterization Question
Hello,
I have a client who had a recharacterization in 2021 from the Roth to the Rollover. After the client met with their CPA, the CPA said that they actually did not need to recharacterize, and that the contribution could have remained in 2021 as a Roth. Are we able to have another recharacterization request done to essentially move the funds back to the Roth account as a 2021 Roth contribution? If not, what are our options? Backdoor Roth conversion?
Any help would be greatly appreciated. Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2022-03-28 17:22
A recharacterized contribution cannot be “re-recharacterized” back to the original contribution. Client’s could convert the rollover IRA, but because that IRA likely contains considerable pre tax dollars, any conversion would be taxable and probably not desirable. Client could also request a return of the now recharacterized TIRA contribution with earnings and make a new Roth 2021 Roth contribution prior to 4/18. The return of contribution could include gains that would be taxable on the 2021 return, the year the original contribution was made. In determining gain or loss, the gain or loss on the first recharacterization would have to be combined with the gain or loss while the recharacterized contribution was in the rollover IRA. That could be a challenging process for the rollover custodian to complete.