• Skip to primary navigation
  • Skip to main content
Good Financial Cents®
Content is based on in-depth research & analysis. Opinions are our own. We may earn a commission when you click or make a purchase from links on our site. Learn more.
  • Make Money
    • Get Money Now
      • Ultimate Guide to Making Money
      • Need Money Now
      • Get Free Money Fast
      • Make Money Fast
      • Make $1K Per Month
      • Make $100 Per Day
    • Control Your Destiny
      • Self Employed Jobs
      • Make Money from Home
      • Hobbies That Make Money
      • How to Become a Freelance Writer
      • Small Business Ideas to Start
      • How to Become an Independent Contractor
      • Best Online Jobs
    • Passive Income
      • Passive Income Ideas
      • Multiple Streams of Income
      • Extra Income
      • Residual Income Ideas
      • Learn to Sell e-Books
      • Make Money on Facebook
      • Make Money on Tiktok
      • Best Online Survey Sites to Make Money
    • Explore More
      • Best Side Hustle Ideas
      • Make Money for Teens
      • Best Online Colleges
      • Best Jobs No College Degree
      • Become a Millionaire
      • Careers for the Future
  • Manage Money
    • Best Of
      • Budgeting Tools
      • Personal Finance Software
      • Best Cashback Cards
    • Company Reviews
      • Personal Capital vs Mint
      • Personal Capital Review
      • SmartAsset Review
    • Guides
      • Buy or Lease a Car
      • What is Liquid Net Worth?
      • Setting Financial Goals
      • How to Budget
      • Ways to Save Money
    • Explore More
      • How Much Car Can I Afford?
      • Best Auto Refinance Companies
  • Invest
    • Best Of
      • Best Short and Long-Term Investments
      • Best Low Risk Investments
      • Best Online Stock Brokers
      • Best Crypto Exchanges
      • Best Short Term Investments
      • Best Long Term Investments
      • Best Trading Platforms
      • Best Investment Apps
    • Company Reviews
      • Lending Club
      • Robinhood
      • M1 Finance
      • Ally
      • TD Ameritrade
      • Fundrise
      • Betterment
      • Etrade
      • Wealthfront
    • Guides
      • Investing for Beginners
      • Investing Small Amounts of Money
      • Investing in Real Estate
      • No Money Down Real Estate
      • Bonds vs Stocks
      • Peer to Peer Lending
      • Best Hedges Against Inflation
      • Safe Bitcoin Investing in 2023
    • Explore More
      • Bitcoin vs. Real Estate
      • Betterment vs Wealthfront
      • Investing for College Students
      • Stock Market Alternatives
    • By Investment Amount
      • How to Invest $100
      • How to Invest $1K
      • How to Invest $2k-$3k
      • How to Invest $5K
      • How to Invest $10K
      • How to Invest $15k
      • How to Invest $20K
      • How to Invest $30k
      • How to Invest $50K
      • How to Invest $100K
      • How to Invest $200K
      • How to Invest $500K
      • How to Invest $1M
  • Taxes
    • Best Of
      • Best Tax Relief Companies
      • Best Tax Software
    • Guides
      • Federal Income Tax Guide 2023
      • Taxes and Cryptocurrency
      • How to Do Your Own Taxes
      • How to Invest Your Tax Refund
      • Hiring a Professional Tax Preparer
      • Tax Tips for Freelancers
    • Company Reviews
      • TurboTax Review
      • H&R Block Review
      • Taxslayer
      • Tax Act
  • Insurance
    • Best Of
      • Best Life Insurance
      • Best Home Insurance
      • Best Auto Insurance
      • Cheap Term Life Insurance
      • Car Insurance For Young Adults
    • Guides
      • Term vs Whole Life
      • Different Types of Car Insurance
      • Average Cost of Car Insurance
    • Explore More
      • Life Insurance Over 50
      • Life Insurance Over 80
      • $1 Million Life Insurance
      • $2 Million Life Insurance
      • $3 Million Life Insurance
    • Company Reviews
      • Banner Life Insurance
      • Ladder Life Insurance
      • Health IQ
      • Haven Life
      • Policygenius
      • State Farm Auto Insurance Review
  • Retirement
    • Roth IRA
      • Best Places to Open a Roth IRA
      • Best Investments for Roth IRA
      • 7 Roth IRA Secrets
      • Roth IRA Conversion Guide
      • Roth IRA Rules
      • Roth IRA vs Roth 401k
      • Are Roth IRA Contributions Tax Deductible?
    • 401(k)
      • 401(k) Limits
      • 401(k) to Roth Rollover
      • Is 401(k) Enough for Retirement?
      • Maxed Out 401(k): What's next?
    • Traditional IRA
      • Traditional IRA Rules and Limits
      • Traditional IRA vs. 401(k)
      • Simple IRA Rules
      • SEP IRA Rules
      • How Much Do You Need to Start an IRA?
    • Explore More
      • SEP IRA vs. Roth IRA
      • 457 Plan for Successful Retirement
      • 401a Rollover Rules
      • How to Retire at 50
      • How to Retire at 55
  • Banking
    • Best Of
      • Best National Banks
      • Best High-Yield Savings Accounts
      • Best Checking Accounts
      • Best Savings Accounts
      • Best CD Rates
      • Best Money Market Accounts
    • Company Reviews
      • BBVA
      • Synchrony
      • Wells Fargo
    • Explore More
      • 9 Banking Alternatives for 2023
      • What is a Credit Union?
  • Home
    • Best Of
      • Best Mortgage Lenders
      • Best Mortgage Refinance Companies
      • Best Home Warranties
      • Best Homeowners Insurance
      • Best VA Loans
      • Best Mortgage Rates
      • Best Moving Companies
      • Best Home Security
    • Guides
      • Home Buying Checklist
      • Online Home Appraisal
      • How Much House Can I Afford?
      • First-time Homebuyer Programs
      • How to Get Approved for a Home Loan
      • Save Money When Building a House
      • How to Save for a Downpayment
      • When to Refinance Your Mortgage
    • Explore More
      • 15 vs. 30-year Mortgage
      • Home Warranty vs. Home Insurance
      • Veterans United Home Loan Review
      • Quicken Loans Review
      • HELOC vs Second Mortgage
      • DCU Mortgage Review
      • Costco Mortgage Program Review
      • USAA Mortgage Loan Review
  • Credit
    • Best Of
      • Best Credit Repair Companies
      • Best ID Theft Protection Services
      • Best Credit Report Options
      • Best Bad Credit Loans
    • Guides
      • How to Build Your Credit Score
      • How to Raise Your Credit Score in 5 Months
      • How to Dispute Your Credit Report
      • Hot to Remove Collections from Your Credit Reports
      • How Identity Theft Destroys Your Credit Score
    • Explore More
      • What is a Good Credit Score?
      • What is a Bad Credit Score?
  • Debt
    • Best Of
      • Best Debt Consolidation Loans
      • Best Personal Loans
      • Best Student Loans
      • Best Student Loan Refinance
    • Guides
      • What is Debt Consolidation?
      • How to Get Out of Debt
      • How to Get a Personal Loan Approved
      • How to Pay Off Student Loans Faster
      • Should I Consolidate My Debts?
      • Should I File for Bankruptcy?
    • Company Reviews
      • Credible
      • Sofi

Roth IRA Recharacterization Rules — Reverse/Undo a Roth IRA Conversion

https://www.goodfinancialcents.com/wp-content/uploads/2019/07/MG_5503-150x150.jpg
  • Written By:
    Jeff Rose, CFP®

    Jeff Rose, CFP®

    Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance...

    Read More
  • Updated: September 7, 2021
  • 5 Min Read
  • Advertising Disclosure

    Advertising Disclosure

    GoodFinancialCents® has an advertising relationship with the companies included on this page. All of our content is based on objective analysis, and the opinions are our own. For more information, please check out our full disclaimer and complete list of partners.

Quality Verified THE GFC® PROMISE
shield check icon
Quality Verified

GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

shield check icon
Why You Can Trust GoodFinancialCents®

GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

How many times in your life do you wish you had a “do over” or “take back“.roth ira recharacterization rules

Often times your stuck with the decision you made and the repercussions that come along with it.

When it comes to investing, many of us have made mistakes over the years. Whether is was underfunding your retirement plan or buying that “hot stock tip” that turned into a disaster; these are decisions that are irreversible.

One decision that does allow you to cash in a “redo” is the Roth IRA conversion.

For those that may have converted their Roth IRA prematurely, here’s what you need to know to reverse it back to a traditional IRA better known as a “Recharacterization“.

Here are the rules on the IRA Recharacterization that you need to know. Learn more about Roth IRA rules and contribution limits here as well!

Recap of 2010 Conversion Event

If you haven’t heard of the 2010 Roth IRA Conversion event, then you obviously haven’t visited my blog before. That’s okay, I forgive you.  🙂 While 2010 is the actual year that you will be able to convert, the income to be claimed can be deferred until 2011 and 2012.

Expecting a vast majority to take advantage of this, the IRS has set up special provision on how the tax will be paid.  The IRS has granted you the option to claim 50% of the conversion amount as income in 2011 and the remaining 50% in 2012.  Keep in mind that this is only in 2010.  After 2010 the taxes will all be paid in full the following year going forward.

If you elect to pay the tax over the two year period, keep in mind that the tax rate is determined for that year only.   Example, in 2011 you will pay the tax based on your tax bracket for that year.   If your income were to somehow sky rocket in 2012, then you will be paying more in taxes that year for the conversion.

Why Would Your Recharacterize a Roth IRA Conversion?

That’s a great question!  With the Dow Jones hovering around 10,000 again, I hope that you won’t want to do a Roth IRA recharacterization in the next few years.  Most pe0ple that have reversed a Roth IRA Conversion have done so for the following reasons.

At the time of conversion, the account value of your traditional IRA is what you have to add as ordinary income for that year.  If you executed a Roth IRA conversion early in 2008 when the Dow was still at respectable levels, the Recharacterization is a godsend.

Why?  Because you can reverse the conversion when your account balance was higher and now reconvert at a lower amount.  In essence, that means you will pay less income tax on the conversion.  How’s that for a redo?

Did You Miss The Deadline?

As with any great coupon, there is usually an expiration date.  The recharacterization is no different.  You have until October 15th of the calendar year after the year you converted to recharacterize.  For those wanting to reverse your conversions of 2008; sorry, but it’s too late.

For future reference, if you are trying to recharacterize a conversion from a Roth back to a traditional IRA you are not allowed to reconvert back to a Roth within the same tax year or within 30 days of the IRA recharacterization.

In other words, an IRA that has switched to a Roth earlier this year and then switched back can’t be reconverted to a Roth this year. The reconversion has to be delayed until at least January 1 or if later, 30 days after the IRA was switched back to the traditional.

Rules on How Report the Recharacterization

To reverse the conversion, first step is to contact your IRA custodian.  For example, most brokerage firms will have their own in house paperwork to complete.  The next step will depend if you have filed your tax return or not.  If you have yet to file, just updating form 1040 will take care of it.  If you have already filed, you’ll have to file an amended return with form 1040x and you’re back to the drawing board.

Recent Recharacterization Question

Is a re characterization based on the dollars of the stock shares or stock shares only? – Here is my situation: in 2010, I moved 10,000 shares of company ABC stock in my traditional IRA to a newly opened Roth IRA (My Roth account was credited 10,000 shares (not dollars value), since I did not sell the stock when I did the transfer).

My expected hope at that time was that the stock would appreciate in value within a year, then I could pay tax on the 10,000 shares valued at the time of the conversion to Roth and would realize a gain without a tax burden in Roth IRA.  Unfortunately for me, the stock price did not go up but declined substantially.

As a result, I requested my brokerage service to re convert (or re characterize) 10,000 shares of ABC from Roth to traditional IRA in April of the following year 2011.  The re characterization was completed successfully.

However, my brokerage service firm reported the IRA conversion in $ amount (but not the # of shares).  Since the $ value of 10,000 shares at the time of re characterization done in April 2011 was substantially less than the value at the time of moving from Traditional IRA to Roth IRA in 2010.

Do I owe tax on the difference of the $ values? Was my re characterization of 10,000 shares completed correctly without tax consequence?  I would like to stress that I did not trade the stock during the entire time the stock was in my Roth IRA. I just simply move 10,000 shares from Traditional IRA to Roth and revert them back from Roth to traditional IRA.

  • All Roth conversions and recharacterizations are reported in dollars. If you tell the custodian the number of shares you want converted they will report the value of those shares on the 1099R and you must report that value in your income. When you recharacterize, you should request the recharacterization in terms of the dollar amount of your original conversion you want recharacterized.

In your situation, you converted into a new Roth IRA rather than an existing Roth. A full recharacterization of such a conversion is simple in that no earnings calculation must be done to calculate the investment results of the entire Roth since the Roth does not hold anything other than your conversion.

Therefore, this Roth IRA presently should have a -0- balance, and the reduced value of those shares is now back in your TIRA account. You have eliminated the tax bill on your conversion. I assume that there were no dividends paid on the stock while it was in your Roth IRA.

2.  My second question is how many times can I move back and forth between Roth and Traditional IRA just like I did in 2010 and 2011?  Is there any rule that limits the number of conversion from Roth-to-traditional IRA’s (and re characterization) in 1 year or in one’s lifetime?

  • There is a time limit to reconvert the same assets. That time limit is either 30 days from the recharacterization date or Jan 1 of the year following the conversion, whichever is longer. Since your other conversion was in 2010 and you recharacterized it April, 2011, you could have reconverted 30 days after the April recharacterization.

You did not have to wait until 2012 because your recharacterized conversion was a 2010 conversion, not a 2011 conversion. This is the only waiting period and it only applies when reconverting the same assets. People with large IRAs that do partial conversions can convert other amounts in their IRA without a waiting period.

Note that you must report your activity on your tax returns when you recharacterize. For 2010 you should have filed Form 8606 to report your conversion, unless you filed after you recharacterized it. If you filed after you recharacterized the conversion, you did not need an 8606, but should have included an explanatory statement with your 2010 return indicating the dates and amounts of both the conversion and the date and amount of the recharacterization and how much is was worth when transferred back to the TIRA.

Neither you or the IRS received the 1099R for the recharacterization until January, 2012 but that 1099R should have been coded to indicate that you recharacterized a 2010 conversion. Since this all applied to 2010, your 2011 return does not have to reflect anything further about this recharacterization.

If you don’t include explanatory statements, the IRS may have trouble understanding what you did and how much of your conversion is recharacterized.

Facebook LinkedIn Twitter

About the Author

Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion - educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel.


Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University - Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® - Accredited Asset Management Specialist - and CRPC® - Chartered Retirement Planning Counselor.

While a practicing financial advisor, Jeff was named to Investopedia's distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC's Digital Advisory Council.

Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.

Facebook Twitter LinkedIn

You Might Also Enjoy

What Happens When Your Bank is Seized by the FDIC?

What Happens When Your Bank is Seized by the FDIC?

How to Invest $200,000 and Generate a Solid Return

How to Invest $200,000 and Generate a Solid Return

Webull Review: Trade Crypto and Traditional Investments on the Same App

Webull Review: Trade Crypto and Traditional Investments on the Same App

How To Diversify Your Portfolio With Artwork In 2023

How To Diversify Your Portfolio With Artwork In 2023

10 Best Investment Companies in 2023

10 Best Investment Companies in 2023

The 8 Best Guaranteed Interest Investment Accounts for Your Money

The 8 Best Guaranteed Interest Investment Accounts for Your Money

  • Make Money
  • Manage Money
  • Invest
  • Taxes
  • Insurance
  • Retirement
  • Banking
  • Home
  • Credit
  • Debt
  • About
  • Contact
  • Facebook LinkedIn Twitter

© 2023 Good Financial Cents®. All Rights Reserved. | Privacy Policy | Disclaimer

All written content on this site is for information purposes only. Opinions expressed herein are solely those of AWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

All third party trademarks, including logos and icons, referenced in this website, are the property of their respective owners. Unless otherwise indicated, the use of third party trademarks herein does not imply or indicate any relationship, sponsorship, or endorsement between Good Financial Cents® and the owners of those trademarks. Any reference in this website to third party trademarks is to identify the corresponding third party goods and/or services.