Can I Convert My Roth IRA Back to Traditional IRA?

IRAs are a good way to save for retirement. Understanding all of the IRA rules can be tough. If you make a mistake, or if your circumstances change and you want to change your new Roth IRA back to a traditional IRA can you do it?

The most common reason to change a Roth IRA back to a traditional IRA is if you end up making too much money to be eligible to make a Roth IRA contribution. Lots of people make Roth IRA contributions because they estimate that their income will be low enough to qualify, but a big bonus or a new job can boost your adjusted gross income, or AGI up above the maximum Roth IRA contribution income limits.

Another possibility is if you do a rollover into an IRA and change your mind about what kind of IRA it should be.

If this happens to you, you can do something called a recharacterization. Basically, the IRS allows you to recharacterize your Roth IRA contributions as traditional IRA contributions. It's like saying, "Whoops. I meant traditional IRA, not ROTH IRA."

To recharacterize your Roth IRA contributions (or other IRA contributions, for that matter) you must contact your financial institution or broker and tell them what you are doing. They will do what is called a trustee-to-trustee transfer, which is basically a way of saying that the money will be moved electronically directly from the Roth IRA account to the regular IRA account.

This transfer will show up on a 1099-R tax form that you will receive from the brokerage firm. Use the information on that form to fill out IRS Form 5498. This form allows you to inform the IRS that the transfer you did is a recharacterization and not a taxable transfer, or worse, an early withdrawal from an IRA account.