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Conversions and Recharacterizations

IRA Conversion

An IRA conversion is a transfer of Traditional, Traditional Rollover or SEP IRA assets to a Roth IRA with the same custodian or as a trustee-to-trustee transfer or rollover. A conversion is subject to Form 1099-R reporting for the distribution from the non-Roth and Form 5498 for the contribution to the Roth IRA.

Eligibility Requirements

You are eligible to convert to a Roth IRA if your modified adjusted gross income (MAGI) does not exceed $100,000 (not including the IRA conversion amount) in the year you convert. This rule applies to both single and joint tax filers. Married individuals filing separate tax returns are not eligible to convert to a Roth IRA unless they have lived apart from their spouse for the entire tax year.

IRA Recharacterization

Effective January 1, 2018, pursuant to the Tax Cuts and Jobs Act (Pub. L. No. 115-97), a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA cannot be recharacterized. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans.

Reconversion

Reconversion is defined as a second conversion (following a Recharacterization) from a non-Roth IRA to a Roth IRA. Taxpayer has already made a first conversion from a non-Roth to a Roth IRA and then recharacterized the conversion amount (including net earnings) back to a non-Roth IRA. You may not convert, recharacterize and then reconvert in the same tax year. IRS reporting is required.

A taxpayer cannot reconvert back to a Roth IRA until the later of:

January 1 of the tax year following the year of the first conversion, or

30 days after the recharacterization to a non-Roth IRA

If the taxpayer makes a reconversion within the same tax year or before the 30 day waiting period, the reconversion is disregarded and the taxpayer must use the value of the non-Roth IRA at the time of the first conversion to calculate the taxable income for the year.

Additional Information

• If you are age 70½ or older and you have not taken a Required Minimum Distribution (RMD) from your IRA, you must do so prior to converting to a Roth IRA.
• For IRA Conversions from a traditional IRA (or IRA rollover) account, you first must open an IB Roth IRA if you do not already have one.
• Your existing traditional IRA account will be closed upon completion of a full conversion transfer.
• Please note that transfers of securities positions from a Traditional IRA to a Roth IRA will only be accepted between accounts with matching names and taxpayer identification numbers.
• You cannot revoke or modify your election to Recharacterize after the election has been made.
• An election to Recharacterize must be made by the federal tax return due date, plus the maximum six-month extension period, for example, October 15, 2011.

Consult your tax advisor before you decide to convert to a Roth IRA.