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February 16, 2009

Outstanding Recharacterization

Your Guide



A conversion that is recharacterized in the year that follows the year in which the conversion was done. For example: A conversion that is done in 2017 and recharacterized in 2018 is an outstanding recharacterization for calculating 2018 RMDs.

Recharacterizations are required to be completed by the individual’s tax filing deadline, including extensions. Individuals who file their tax return by the due date receive an automatic six-month extension, bringing the deadline to October 15 for taxpayers who file on a calendar year.


Referring Cite

Treas. Reg. 1.408A-5, Q&A 6, TD 9056, IRC §408A, IRS Publication 590

Additional Helpful Information

An outstanding recharacterization is required to be added to the previous year-end fair market value (FMV) of the receiving traditional IRA when calculating the required minimum distribution (RMD) for the year. For instance, if a conversion is done in 2009 and recharacterized in 2010, the recharacterization be added back to the 12/31/2009 FMV of the receiving traditional IRA when calculating the RMD for 2010. Failure to add the outstanding recharacterization to the FMV will result in the calculated RMD amount being less than what it should be, causing the IRA owner to owe the IRS an excess accumulation penalty of 50% of the RMD shortfall.

Important: The Tax Cuts and Jobs Act of 2017 repealed the option to recharacterize Roth conversions, for Roth conversions done after 2017. As such, only regular contributions to traditional IRAs and Roth IRAs may now be recharacterized.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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