IRS updates IRA FAQs on recharacterization for Tax Cuts and Jobs Act changes

The IRS has updated its website’s IRA FAQs concerning recharacterization of Roth rollovers and conversions for the changes made by the Tax Cuts and Jobs Act (P.L. 115-97). Effective January 1, 2018, under the Act, a conversion from a traditional individual retirement arrangement (IRA), SEP, or SIMPLE IRA to a Roth IRA cannot be recharacterized. In addition, the Act prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans.
According to the IRS, a recharacterization allows an IRA owner to treat an annual contribution made to a Roth IRA or to a traditional IRA as having been made to the other type of IRA. If the recharacterization is done by the due date for filing tax returns (including extensions), the contribution may be treated as made to the second IRA for that year.

Impact of Act

The IRS explains that a Roth IRA conversion made in 2017 may be recharacterized as a contribution to a traditional IRA if the recharacterization is made by October 15, 2018. A Roth IRA conversion made on or after January 1, 2018 cannot be recharacterized. For more details, the IRS recommends reviewing “Recharacterizations” in Pub. 590-A (Contributions to Individual Retirement Arrangements (IRAs)).

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