Simplifying IRA Lingo

simplifying IRA Lingo

Conversion, Recharacterization, Reconversion, oh my! IRA terms can get confusing so here are just a few IRA related definitions that are commonly asked about:


Assets are withdrawn from a retirement plan and then re-deposited into the same or other eligible plan. This is a reportable transaction for an IRA owner and it must be completed within 60 days. There is a 1 per year limit regardless of how many IRAs you have.


A transfer of IRA funds that are sent, usually electronically, from an IRA and received directly by another IRA. Unlike a rollover, trustee-to-trustee transfers are unlimited.


A conversion is when a traditional IRA (or SEP or SIMPLE IRA) is changed into a Roth IRA. Ordinary income taxes will become due on the converted amount in the year of the conversion.


This refers to a traditional IRA that has been converted to a Roth IRA but then the owner decides (s)he wants to “undo” the conversion. Recharacterization is also used to refer to a Roth IRA contribution that an owner wishes to change into a traditional IRA contribution.


Assume an owner converts a traditional IRA to a Roth IRA, then recharacterizes it to “undo” that conversion. However, (s)he later decides that the conversion to a Roth IRA was a good idea after all. The traditional IRA is now going to be reconverted from a traditional IRA to a Roth IRA.

*You cannot convert and reconvert 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.



More Updates


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Rolling Over an RMD

Like most people’s lives, the retirement world is upside down. This is made evident by a single statement: “Required minimum distributions (RMDs) can be rolled over.” Yes, that is the new normal—at least for this year. RMDs are considered the first money out of an IRA and workplace plan. Typically, these dollars are ineligible to

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