Things You'll Need:
- Financial advisor
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Step 1
Talk to your financial institution or advisor. By doing it through a professional, you are guaranteed to prevent mistakes and undue taxes later.
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Step 2
Keep in mind that in order to recharacterize your IRA, you must set up a new traditional IRA account. Your funds will not revert to the original IRA account you had (since it was closed when you moved the funds). This may or may not result in certain difficulties, depending on your account, the size of your assets and who is managing the account.
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Step 3
Recharacterize your IRAs to deal with an account where taxes have increased. This allows you to change the rate and you'll end up paying only the lowest market value available at the moment. Since market values change throughout the year, however, it only makes sense to recharacterize if the difference is quite large and you have a reason to believe it will stay this way.
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Step 4
Remember that you are only allowed one reconversion a year (unless you can prove that the recharacterization was done to correct a previous mistaken conversion). So if you are recharacterizing your IRA in order to save on taxes, make sure you are getting the best available deal the first time around.
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Step 5
Remember to check your calendar. You are only allowed to recharacterize at a certain time during the year. This coincides with your tax-filing deadline (although extensions are possible if handled early and appropriately). The extensions may give you up to 6 months more in which to convert your IRAs, but this is dependent on a number of factors, so it's important that you research your options before taking the next step.
