Two Retirement Plan Changes: Re-characterization of IRA Contributions and Extended Rollover Period

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  • Recharacterization of IRA contributions An individual who makes a contribution to a regular or Roth IRA can recharacterize it as made to the other type of IRA via a trustee-to-trustee transfer before the due date of the return for the contribution year. Under the new law, however, once a contribution to a regular IRA has been converted into a contribution to a Roth IRA, it can no longer be converted back into a contribution to a regular IRA, i.e., a recharacterization cannot be used to “unwind” a Roth conversion.
  • Extended rollover period for borrowers If you recently experienced a change in employment status and are considering taking a loan from a qualifying retirement plan, you now have more time to repay the loan under the new tax law. Previously, borrowers had 60 days to repay retirement plan withdrawals before having the outstanding amount treated as a taxable distribution, plus a potential 10% penalty for early distribution (if under age 55). The new law extends the repayment time frame to coincide with the borrower’s tax return due date for the year the job change occurred.
SKR+CO Expert
Melody Antles, CPA, Senior Tax Manager
Melody has been in public accounting since 2004. Her specialties include individuals, partnerships and small businesses.