What is a Recharacterization?
Besides being an unwieldy term, a recharacterization is a trustee-to-trustee transfer of funds from a traditional IRA (NOT including a SEP IRA or SIMPLE IRA) to a Roth IRA, or from a Roth IRA to a traditional IRA, SEP IRA, or SIMPLE IRA. The trustee-to-trustee transfer is important: if the transfer isnt from trustee to trustee, it goes through you, and then its considered a withdrawal, and subject to penalties. Recharacterization isnt a bad idea: youre redesignating one type of IRA as another type of IRA. The transfer includes any gains or losses, but the amount recharacterized does not include any gains or losses incurred after the initial contribution or conversion.
