The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Retirement Investing


Subject:  Re: Do I have this correct? Date:  4/17/2002  9:13 AM
Author:  jrr7 Number:  34237 of 97883

This relates very importantly to the idea of recharacterizing a 401(k) or a traditional IRA as the taxes you pay on the recharacterization will not impact the taxes owed on the earned income

I think you're confusing "conversion" and "recharacterization".

Both those terms apply only to IRAs.

A conversion is when you have a traditional IRA and desire to convert it, in whole or in part, into a Roth IRA. The amount you convert is included in your AGI. I believe this is what you were referring to, except that 401(k)s cannot be converted -- they must first be rolled over into a Traditional IRA.

A recharacterization is when you want to undo a conversion, or when you decide that money you contributed to an IRA of one type during the current tax year should instead have been contributed to an IRA of the other type. For instance, if you contribute to a traditional IRA in May in hopes of getting the tax deduction, and then in August you get a job with a retirement plan, you'd lose the tax deduction. So you could recharacterize your contributions to that traditional IRA and make it as if they'd been in a Roth IRA from day one.
Copyright 1996-2020 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us