What is a Roth conversion?
A Roth conversion is a reportable movement of assets from a traditional/SEP/SIMPLE IRA or employer qualified plan to a Roth IRA. There are two ways a distribution from your company retirement plan/403(b) plan/governmental 457 plan can be moved to a Roth IRA:
What are the tax implications of my Roth conversion?
All or a portion of the amount you converted may be taxable to you in the year of your Roth conversion. Conversions are taxable in the year the distribution occurred. Use IRS Form 8606 to determine your taxable amount.
What tax forms should I receive related to my Roth conversion?
You should receive Form 1099-R for the distributing traditional/SEP/SIMPLE IRA or employer qualified plan and Form 5498 for the receiving Roth IRA.
Can I recharacterize a traditional or Roth IRA contribution?
Yes. If you made contributions to a traditional or Roth IRA, a recharacterization changes the nature of the contributions. You should report the contributions as if they had been originally made to the IRA to which the contributions were moved. A recharacterization is a trustee-to-trustee transfer of the original contribution plus any related earnings. You cannot recharacterize a Roth conversion.
What is the deadline for completing a recharacterization?
You have until the due date for filing your tax return, including extensions, to recharacterize a contribution. In addition, the IRS allows an automatic six-month extension to elect to recharacterize.
Note: If you recharacterize a contribution made in the previous calendar year, it impacts your tax return even though the recharacterization activity will be reported on the next year's Form 1099-R. You may need to file an amended return if you have already filed your tax return for that year.
How are recharacterizations reported on Forms 1099-R and 5498?
The Roth IRA custodian reports the recharacterization distribution on Form 1099-R, and the traditional IRA custodian reports the same amount on Form 5498.
The information provided is not intended as a source for tax, legal or accounting advice. Please consult with a legal and/or tax professional for specific information regarding your individual situation.