Recharacterization Overview

By Kaye A. Thomas
Current as of November 16, 2013

Overview of how to undo a Roth IRA mistake by recharacterizing a contribution or conversion.

You might call it the “oops” rule. You can switch your IRA contribution from one type of IRA to another, or undo a conversion. Subject to some restrictions, you can go from Roth to traditional or from traditional to Roth. You can use this rule to recover from a failed conversion, or simply because you changed your mind. You can even use this rule to reduce your taxes by reversing a conversion following stock market losses. Now that’s a friendly rule!


About the only unfriendly thing about this rule is the seven-syllable word used to describe it. A better description, in just three syllables: it’s a do-over. This rule allows you to change something you did in the past, and treat it as if that’s the way you did it in the first place. You switch contribution money or conversion money from one type of IRA to another. If you follow all the rules, it’s as if you traveled back in time: you get to pretend the first choice never happened.

Possible Uses

Here are some of the possible ways you could use this rule:

  • Failed conversion. You converted a regular IRA to a Roth IRA in February. In November you realize the conversion included a required minimum distribution, which isn’t permitted. One way to fix that problem is with a recharacterization.
  • Successful but unwanted conversion. Suppose your conversion didn’t fail, but it turned out to be a mistake? You found out later that you didn’t have enough money to pay the tax on the conversion. Or you discovered that this added income might prevent your child from receiving financial aid for college. Or you simply thought better of the whole idea. You can move the money back to a traditional IRA and the unwanted conversion disappears.
  • Market losses after conversion. You made a good conversion and you still like the idea of a conversion — but you wish you hadn’t done it so soon. Your Roth IRA suffered market losses after the conversion, and that means you would report less tax if you were converting now. Here again you can use this rule to undo the conversion — and then do a new conversion after a required waiting period. If your investments are still at the lower value when you reconvert, your tax cost will be lower.
  • Regular contribution to traditional IRA. You made a regular contribution to a traditional IRA and now you wish you had contributed that money to a Roth IRA instead. No problem! Substitute a Roth IRA for the traditional IRA as the recipient of that contribution.
  • Regular contribution to a Roth IRA. The same thing works in the other direction. Maybe you found out your income was too high for the contribution to the Roth IRA, or you simply changed your mind about which type of IRA will work best for you. Whatever the reason, you can substitute a traditional IRA for the Roth IRA, and you’ll be treated as if the contribution originally went to the traditional IRA.


Bear in mind that recharacterization isn’t the only way to deal with a contribution you didn’t want to make. In some cases it makes more sense to move that contribution to another IRA, and in others it might make sense to withdraw the contribution under the excess contribution rules. But recharacterization is the only way you can rewrite the past, and make it as if your contribution originally went to a different IRA.