I thought I read a post here that dealt with an individual who wanted to contribute to a TIRA and if the account REALLY appreciated to Recharacterize as a Roth. This would enable them to insure that only "winners" ended up in the Roth and that "losers" would stay in TIRA where you got a $2000 tax deduction. For example a $2000 TIRA contribution that had $2500 in earnings in 6 months would be Recharacterized as a Roth. That puts $4500 into the Roth on a $2000 contribution.

I think that this idea was shot down for a reason that I do not recall. I've tried the search feature but have had no luck.
Anyone recall it or know why this would not be permitted?
It is essentially the reverse of the normal reason why Roths are recharcterized.

Sorry, your concept won't work. First, you don't "convert" winners or losers, you convert dollars without regard to the nature of what is transfered - specific stocks or cash. Capital gains have no meaning in IRA math. When the value of an asset appreciates rapidly, you just have more assets, a higher value to convert and therefore more taxes.

By the way, when you shift from a regular IRA to a Roth the term is "conversion". "Recharacterization" is the reverse process where you decide to undo a conversion.

The IRS Pub 590 is a good source of information on the various IRA procedures. Before making complex IRA decisions, read that publication carefully and/or consult an accountant or tax specialist.

Added comment: I apologise for misunderstanding the question. I thought you were refering to later conversion of an IRA rather than the issue of respecifying the nature of the contribution in a specific year. I defer to the other comments on how that transaction could be handled.

Thanks John,

I don't think you have read 590 as closely as you think. Actually, recharacterization is not just for Roths. It is the ability to treat a contribution made to one type of IRA as having been made to another type of IRA. So it can go from an IRA to a Roth, although most talk on various websites is about from Roths back to TIRA'a.
I realize how the Rechar works and that it is not "stock specific."
I was talking about a Rechar of the entire account when I spoke of winners.
I really have no intention of doing what was referred to in my initial post because I thought someone gave a reason why the earnings could not be transferred and because I don't feel comfortable playing "games" to get the last nickel from the tax man, even if it is permissible and legit.
However, when discussing all the options available to a client I do not want to leave any out that they may be comfortible with and that is available to them.

If you contribute $2,000 to a brand new TIRA, you can then recharacterize that entire account later as a Roth contribution. If you contribute $1,000 each to two TIRAs, you can recharacterize one and not the other. Ditto if you contribute $500 to four accounts.

You can do this in reverse, and make the contributions to Roth accounts. For example, if you contribute $500 to a brand new Roth, and it falls to $300, you can recharacterize it to a TIRA and still get a $500 deduction (if you qualify for the deduction).

If you contribute $2,000 to a TIRA and it grows to $4,500, you cannot recharacterize $2,500 to a Roth and still keep a $2,000 deduction. If you recharacterized $2,500, you contribution would be reduced ratably (25/45).

Thanks Barry,

I guess my recollection of reading it was not permissable was incorrect, or if I did read it the posting was incorrect.
Actually, I have done a lot of reading and REREADING on this subject and couldn't understand why it would not be permitted.

What you may be thinking of is the inability to cherry pick the recharacterization, i.e. only move winners while taking advantage of losers, or vice versa.

Barry,

What’s your basis for this interpretation?

Innate intelligence?

It's my interpretation of the rules. It's other experts' interpretation of the rules. It's the IRS' interpretation of the rules.

Other than that, I have no clue.

According to Retirement Plan Experts, Congress and IRA practitioners…. The only limitations, with respect to frequency, on conversions or recharacterizations that are currently in effect, is on converted assets that are recharacterized. According to the Roth IRA regulations, assets that are converted and are recharacterized, cannot be reconverted until the later of the year following the year the conversion was done or 30 days after the recharacterization, whichever is later.


There is no limitations placed on recharacterizations...