Conversion after recharacterization waiting period

[White Coat Investor]

My understanding of doing a Roth conversion after recharacterizing a direct Roth IRA contribution to a traditional IRA contribution is that you must wait the longer of 30 days or until the next calendar year. But I cannot for the life of me find a citation from the IRS about this. I tried Publications 590A and 590B as well as searching the IRS site. Can anyone provide me the chapter and verse for this rule? Was this rule eliminated last year with the elimination of the ability to recharacterize a Roth conversion?

[tfb]

There is no such rule. There was a waiting period after recharacterizing a conversion, but since that's no longer allowed it's moot now.

[White Coat Investor]

Interesting. So immediate conversion is now allowed after recharacterizing a Roth IRA contribution to a traditional IRA contribution? Or rather, was always allowed?

Do you know of any published example from the IRS or similar of that?

[Snag75]

I'm interested in this too. Been on hold with stupid Fidelity all morning (3 different calls and transfers) to find out if the conversion I did earlier this year will not "stick" and they will likely tell me that they cannot give tax advice.
But when I also had to call multiple times between submitting for recharacterization and conversion back to Roth (multiple delays in processing, again different depts doing different things) and no one blinked an eye or mentioned anything about the transaction, and I believe I was finally able to do the conversion simply online. Seems strange if this is such a "thing".

My understanding is that we don't get reports/forms from IRA contributions each year, and that we need to keep track of growth and basis, etc ourselves? So then I wonder how this issue would even be properly reported.

[Snag75]

Ok, finally got through to the right people at Fidelity and he sounds like he knows what he's talking about. He confirmed that the "recharacterization waiting period is no longer a thing." Basically it was a thing in the 90s and people sometimes still talk about it, but if they do they are way behind on their tax law because it is no longer. So yay!

Btw he also mentioned rumblings in Congress about eliminating option to do backdoor-Roth, which would be a bummer since I only now just learned about it. Hopefully that remains a rumor and rumbling but doesn't come to fruition.

[tfb]

Or rather, was always allowed?

It was always allowed. A recharacterized contribution from Roth to Traditional is treated as a contribution to the Traditional IRA all along.

[Earl Lemongrab]

To clarify, the old rule for recharacterization was 30 days or the year following the conversion, whichever was longer. There's no rule that says, "there's no waiting period for recharacterizing contributions", it just doesn't list a waiting period.

[Earl Lemongrab]

Btw he also mentioned rumblings in Congress about eliminating option to do backdoor-Roth, which would be a bummer since I only now just learned about it. Hopefully that remains a rumor and rumbling but doesn't come to fruition.

I don't think there are any such rumblings. The previous adminstration tried to float that, but Congress was uninterested.

[celia]

Interesting. So immediate conversion is now allowed after recharacterizing a Roth IRA contribution to a traditional IRA contribution? Or rather, was always allowed?

Do you know of any published example from the IRS or similar of that?

https://www.irs.gov/retirement-plans/ir ... tributions says:

What is a recharacterization of a contribution to a traditional or Roth IRA?

A recharacterization allows you to treat a regular contribution made to a Roth IRA or to a traditional IRA as having been made to the other type of IRA. A regular contribution is the annual contribution you’re allowed to make to a traditional or Roth IRA: up to $5,500 for 2018, $6,500 if you’re 50 or older (see IRA Contribution Limits for details). It does not include a conversion or any other rollover.

How do I recharacterize a regular IRA contribution?

To recharacterize a regular IRA contribution, you tell the trustee of the financial institution holding your IRA to transfer the amount of the contribution plus earnings to a different type of IRA (either a Roth or traditional) in a trustee-to-trustee transfer or to a different type of IRA with the same trustee. If this is done by the due date for filing your tax return (including extensions), you can treat the contribution as made to the second IRA for that year (effectively ignoring the contribution to the first IRA).

So, if you had contributed to the tIRA in the first place, you would have been able to convert it without waiting a specific time, just as you would do for a Backdoor Roth.

Ok, finally got through to the right people at Fidelity and he sounds like he knows what he's talking about. He confirmed that the "recharacterization waiting period is no longer a thing." Basically it was a thing in the 90s and people sometimes still talk about it, but if they do they are way behind on their tax law because it is no longer. So yay!

It sounds like you were talking to a new/young guy. The "recharacterization waiting period" only applied to Roth conversions, not recharacterizations. Although I can't find the older IRS 590-B versions online any more, I'm pretty sure the 30-day/end-of year rule applied as long as Roth conversions were able to be recharacterized. That means 2017 conversions could be recharacterized up until October 15, 2018, a long 6 months ago!

[Earl Lemongrab]

Although I can't find the older IRS 590-B versions online any more

The 590 A/B is fairly recent. Before it was all in the same pub. You can find the PDF version for almost any year. There was never a waiting period for recharacterization that I can see for that.

Recharacterizations

You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution. To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. If the transfer is made by the due date (including extensions) for your tax return for the year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the firs tIRA. It will be treated as having been made to the second IRA on the same date that it was actually made to the first IRA.

https://www.irs.gov/pub/irs-prior/p590--1998.pdf

1998 was the first year for Roths.

Edit: Clarified that I meant recharacterizations.

[FactualFran]

It sounds like you were talking to a new/young guy. The "recharacterization waiting period" only applied to Roth conversions, not recharacterizations. Although I can't find the older IRS 590-B versions online any more, I'm pretty sure the 30-day/end-of year rule applied as long as Roth conversions were able to be recharacterized. That means 2017 conversions could be recharacterized up until October 15, 2018, a long 6 months ago!

Open https://www.irs.gov/pub/irs-prior/p590a--2014.pdf for an older version of IRS Publication 590-A. Near the bottom of page 29 is the start of a Reconversions section. The first paragraph of that section is:

You cannot convert and reconvert an amount during the same tax year or, if later, during the 30-day period following a recharacterization. If you reconvert during either of these periods, it will be a failed conversion.

[White Coat Investor]

It sounds like you were talking to a new/young guy. The "recharacterization waiting period" only applied to Roth conversions, not recharacterizations. Although I can't find the older IRS 590-B versions online any more, I'm pretty sure the 30-day/end-of year rule applied as long as Roth conversions were able to be recharacterized. That means 2017 conversions could be recharacterized up until October 15, 2018, a long 6 months ago!

Open https://www.irs.gov/pub/irs-prior/p590a--2014.pdf for an older version of IRS Publication 590-A. Near the bottom of page 29 is the start of a Reconversions section. The first paragraph of that section is:

You cannot convert and reconvert an amount during the same tax year or, if later, during the 30-day period following a recharacterization. If you reconvert during either of these periods, it will be a failed conversion.

That seems to be referring to the waiting period mentioned above- after the recharacterization of a CONVERSION. We are discussing recharacterization after a contribution.

[FactualFran]

It sounds like you were talking to a new/young guy. The "recharacterization waiting period" only applied to Roth conversions, not recharacterizations. Although I can't find the older IRS 590-B versions online any more, I'm pretty sure the 30-day/end-of year rule applied as long as Roth conversions were able to be recharacterized. That means 2017 conversions could be recharacterized up until October 15, 2018, a long 6 months ago!

Open https://www.irs.gov/pub/irs-prior/p590a--2014.pdf for an older version of IRS Publication 590-A. Near the bottom of page 29 is the start of a Reconversions section. The first paragraph of that section is:

You cannot convert and reconvert an amount during the same tax year or, if later, during the 30-day period following a recharacterization. If you reconvert during either of these periods, it will be a failed conversion.

That seems to be referring to the waiting period mentioned above- after the recharacterization of a CONVERSION. We are discussing recharacterization after a contribution.

You can discuss whatever you want to discuss. My reply was to celia's comment about not finding an older version of an IRS publication that stated that the "recharacterization waiting period" only applied to Roth conversions, not recharacterizations. I provided a link to an older version of an IRS publication and a quote from the Reconversion section in it.