Can a Switch to a Roth IRA Be Reversed?
When you have money in a traditional IRA, you may be inclined to move it over to a Roth IRA because of the enticing tax treatment that it provides. If you move the money over to a Roth IRA and then change your mind again, you are allowed to move the money back to a traditional IRA through a process known as recharacterization.
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Recharacterization
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When you decide that you want to put your money into a traditional IRA instead of a Roth IRA, you can use a recharacterization to get the job done. Recharacterization simply means you get to treat the money as if you had planned on putting it into a traditional IRA all along. You can use this if you originally opened a Roth IRA and simply want to change accounts or if you already converted from an IRA to a Roth IRA before.
Reasons to Consider
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A number of reasons could make you want to recharacterize your Roth IRA. For example, if you want to change your tax situation and get a bigger tax break now, you can change back to a traditional IRA so that you can deduct your contributions. If you ended up making more than the income limit for Roth IRAs, you will need to recharacterize so that you can continue to save for retirement. You could also recharacterize so that you will not have to pay taxes on the money from the original IRA to Roth IRA conversion.
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How to Recharacterize
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If you decide that you want to recharacterize your IRA contribution, you will need to fill out the appropriate paperwork with your Roth IRA custodian. In some cases, the custodian can simply change your account over to a traditional IRA. In other cases, you may want to transfer the money to another IRA provider. In that case, you will need to open an account with the provider and then have the money transferred. You will also need to file an amended tax return to notify the Internal Revenue Service of your change.
Rules
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When you want to recharacterize your Roth IRA to a traditional IRA, you have to follow the rules that are associated with this process. You must recharacterize the Roth IRA by the due date of tax filing for the year in which the contribution was made. For example, if you contributed the money in 2010, you have to recharacterize by April 18 of 2011. You also have to wait at least 30 days after a recharacterization before you can do it again.
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