Wednesday, January 12, 2011

How to Handle a Roth Recharacterization

Another great client question....


Q: I would like to roll over a portion of my Traditional IRA to my Roth IRA. Should it be rolled over to the existing Roth IRA account or to a separate new Roth IRA account? I do not want to lose the ability to recharacterize the rollover should my investment diminish. Does putting the rollover money in an existing account disallow recharacteriztion?

A: The fact that you might want to recharacterize means that you should consider establishing a separate Roth IRA for the amount being converted. If you use the existing Roth IRA for the conversion it would not prohibit you from recharacterizing. It would, however, make it more difficult because you would have to consider all the assets in the account for gains and losses that must be attributed to the amount being recharacterized.

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