# Understanding IRA Recharacterization: Rules and Process Explained

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## What Is Recharacterization?

Recharacterization in the context of [individual retirement accounts (IRAs)](https://www.investopedia.com/terms/i/ira.asp) refers to two strategies: switching a contribution from one type of IRA to another or undoing a Roth IRA conversion. Currently, only the first strategy is allowed; you can recharacterize a Roth IRA [contribution](https://www.investopedia.com/terms/r/retirement-contribution.asp) as a traditional IRA contribution or vice versa if you meet specific IRS deadlines.

The second strategy, reversing a [Roth IRA conversion](https://www.investopedia.com/terms/i/iraconversion.asp), was [eliminated by the Tax Cuts and Jobs Act](https://www.investopedia.com/tax-deductions-that-are-going-away-4582165), making such conversions permanent. Recharacterization remains a useful tool for correcting contribution errors or optimizing tax advantages.

### Key Takeaways

*   Recharacterization allows modifying an IRA contribution from one type of account, such as a Roth IRA, to another, like a traditional IRA, by specific deadlines, offering flexibility in retirement planning.
*   Roth IRA conversions have become irrevocable since the Tax Cuts and Jobs Act, making prior recharacterization practices obsolete and signifying a permanent change once a conversion is executed.
*   Contributions to SEP IRAs or SIMPLE IRAs cannot be recharacterized into another IRA type, underlining limitations in recharacterization strategies.
*   Recharacterizations must be completed by the tax return deadline, including extensions, for the tax year of the initial contribution, allowing taxpayers to rectify their IRA designations.
*   When recharacterizing IRA contributions, both the initial contribution and any earnings or losses must be considered, emphasizing the need for accurate calculations or custodial assistance in execution.  
    

## Understanding the Recharacterization Process

A recharacterization lets you treat a regular contribution that you made to a Roth IRA or a traditional IRA as one that you made to another type of IRA.

For example, if you put $7,000 into your Roth IRA, you could change it to be a $7,000 contribution to your traditional IRA instead. Note that $7,000 is the contribution limit to an IRA for 2024 ($6,500 for 2023).

> **Warning**
>
> You can’t recharacterize employer contributions under a simplified employee pension (SEP) IRA or Savings Incentive Match Plan for Employees (SIMPLE) IRA plan as contributions to another IRA.

Recharacterizing a contribution from one type of IRA to another gives you the opportunity to change your mind or correct a mistake—say, you contributed to a Roth even though your income was too high.  

 You must recharacterize your contribution by the due date of your federal [tax return](https://www.investopedia.com/terms/t/taxreturn.asp), including any extensions, for the year you initially contributed. As long as you recharacterize your contribution by this deadline, you can treat the contribution as made to the second IRA for that year. This means that you can effectively ignore the contribution you made to the first IRA.

> **Tip**
>
> The tax year of your contribution is the year it counts for, not always the year you actually contributed. Remember that you generally have until April 15 to make a prior-year contribution.

To recharacterize, ask your IRA provider to transfer the contribution and any earnings to another type of IRA. The recharacterization can occur either within the same institution (if you use one custodian for both IRAs) or via a [trustee-to-trustee transfer](https://www.investopedia.com/terms/d/direct-transfer.asp) if different providers maintain the IRAs.

## How Do You Recharacterize an Individual Retirement Account (IRA) Contribution?

To recharacterize an individual retirement account (IRA) contribution, you’ll need to use an existing IRA or [open a new one](https://www.investopedia.com/articles/personal-finance/032615/take-these-simple-steps-open-ira.asp) to accept the withdrawn funds. Next, notify your financial institution(s) that you want to recharacterize a contribution. If the same IRA provider maintains both IRAs, you can just notify that one institution. Otherwise, inform the custodian holding the IRA contribution in question and the institution that will accept the recharacterized contribution.

You can generally do the recharacterization online or with your IRA custodian’s standard form. You must report the recharacterization on your tax return for the year when you made the original contribution using Internal Revenue Service (IRS) [Form 8606](https://www.investopedia.com/terms/f/form-8606.asp).

## How Do You Allocate Earnings When Recharacterizing IRA Contributions?

If you opt to recharacterize an IRA contribution, you have to transfer the contribution plus any earnings related to those funds—or less any losses. If the IRA is composed entirely of the contribution and earnings that you want to recharacterize—for instance, it’s a new IRA to which you’ve made only one contribution—then you can transfer the entire IRA. This is called a full recharacterization.

Conversely, if you want to transfer part of your IRA, it’s considered a partial recharacterization. In this case, you have to determine how much of the IRA’s earnings are attributable to the contribution that you want to recharacterize. You can skip the math by asking your IRA provider to calculate this amount for you.

## How Much Can I Contribute to an IRA?

For 2024, [you can contribute up to $7,000 to your Roth and traditional IRAs](https://www.investopedia.com/roth-and-traditional-ira-contribution-limits-for-2021-5085118). If you’re age 50 or older, you can make an additional $1,000 [catch-up contribution](https://www.investopedia.com/terms/c/catchupcontribution.asp), bringing the annual contribution limit to $8,000. For 2023, the limit is $6,500, or $7,500 if you’re age 50 or older.

Note that the limit is the combined total for all of your IRAs. So, for example, if you contribute $4,000 to a traditional IRA, the most that you could contribute to a Roth during the same tax year (2024 in this example) would be $3,000.

[Roth IRAs have an extra restriction](https://www.investopedia.com/articles/personal-finance/081615/basics-roth-ira-contribution-rules.asp): Whether you're allowed to contribute the full amount—or anything at all—depends on your [modified adjusted gross income (MAGI)](https://www.investopedia.com/terms/m/magi.asp) and filing status.

## The Bottom Line

There used to be two IRS recharacterization strategies: switching contributions between different IRAs and undoing a Roth IRA conversion. The latter is no longer allowed under the Tax Cuts and Jobs Act, making a Roth IRA conversion permanent.

Today, you can still recharacterize contributions between traditional IRA and Roth IRAs, but you must follow IRS deadlines, generally tax day or its six-month extension. Be mindful of contribution limits and income restrictions, and consult your financial institution to ensure proper processing and reporting.

> **Article Sources**
>
> 1.  Internal Revenue Service. “[IRA FAQs](https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras).”
>     
> 2.  Internal Revenue Service. “[401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500](https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500).”
>     
> 3.  Internal Revenue Service. "[Instructions for Form 8606 (2021)](https://www.irs.gov/instructions/i8606)."
>     
> 4.  Internal Revenue Service. “[Retirement Topics — IRA Contribution Limits](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits).”
>     
> 5.  Internal Revenue Service. "[401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000](https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000)."