How to Recharacterize a Roth IRA to a Traditional IRA

"Recharacterize" is a fancy term for undoing a Roth conversion. Investors who converted traditional IRA funds and saw the overall account value plummet later in the year may want to undo the conversion to avoid paying taxes on a higher amount. Fortunately, the Internal Revenue Service (IRS) allows you to recharacterize a Roth conversion so you don't get hit with the tax bill. There are restrictions, so consult with a tax adviser prior to recharacterizing.

• 1

  Check the calendar to make sure you have not passed the due date. You have until your tax filing deadline for the year the conversion was made to recharacterize the money. For 2010 conversions, you have until you file taxes in 2011, including extensions, to recharacterize.

• 2

  Obtain a recharacterization form from your IRA custodian. Complete the form and submit (hard copy or fax) it to the custodian before the tax filing deadline.

• 3

  Use IRS Worksheet 1-3, "Determining the Amount of Net Income Due to an IRA Contribution and Total Amount to Be Recharacterized." This accounts for the net income earned while the assets were in the Roth account.

• 4

  File your tax return reflective of the recharacterization. If you have already filed your taxes, send an amended return, noting "Filed pursuant to section 301.9100-2" on the return.