Recharacterizing 2018 IRA Regular Contributions: October 15 Deadline Fast Approaching | Wolters Kluwer
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  • Recharacterizing 2018 IRA Regular Contributions: October 15 Deadline Fast Approaching

    Mike Schiller Onward

    by Mike Schiller, Sr. Specialized Consultant, Tax Advantaged Accounts, Wolters Kluwer

    Published August 15, 2019



    Overview

    An IRA owner, through recharacterization, can treat a contribution made to one type of individual retirement account (IRA) (i.e., traditional or Roth) as having been made to the other type of IRA. For example, if an individual made a traditional IRA regular contribution, he/she can elect to recharacterize the contribution as a Roth IRA regular contribution, considering he/she is eligible to make a Roth IRA regular contribution.

    Deadline to Recharacterize

    The deadline for an individual to recharacterize an IRA regular contribution is his/her tax-filing deadline, including extensions. For individuals who timely filed their 2018 federal income tax return, the deadline to recharacterize an IRA contribution made for tax year 2018 is October 15, 2019. Depending on the date of recharacterization, an IRA owner may need to amend his/her federal income tax return.

    Notification Requirement and Reporting

    To recharacterize an IRA contribution an IRA owner notifies the financial organization where he/she made the IRA contribution of his/her intention to move part or all of the original contribution amount, plus net income attributable (NIA), to the other IRA type with the same or a different financial organization. Keep in mind that the original contribution subject to recharacterization, as well as the recharacterization distribution and recharacterization contribution, must be reported to the IRS and IRA owner.

    No Recharacterization of Conversions and Qualified Rollovers Completed After 2017

    Under the Tax Cuts and Jobs Act of 2017, traditional (including simplified employee pension — SEP) IRAs and Savings Incentive Match Plans for Employees of Small Employers (SIMPLE) IRAs that are converted to Roth IRAs after 2017 are not be eligible to be recharacterized. Additionally, rollovers from 401(k), pension, profit sharing, and 403(b) plans to Roth IRAs (i.e., qualified rollovers) completed after 2017, are not be eligible to be recharacterized to a traditional IRA.

    Conclusion

    Due to the various rules and options available as they relate to IRA regular contributions, an IRA owner should seek professional tax advice prior to making a contribution. However, even then circumstances may warrant recharacterization of a contribution. Though an IRA custodian/trustee may assist an IRA owner in completing a recharacterization, it is ultimately the IRA owner’s responsibility to determine the tax consequences when making contributions.

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