IRA contribution adjustments

When making contributions to an IRA, you may consider requesting an adjustment or removal of the contributed funds for some situations, such as the following:

Before you begin

These events can be complicated, are tax-reportable, and may be taxable. We recommend you review these with a qualified tax professional before requesting them.

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Reclassifications

Contributions to IRAs are unique as you have until your tax-filing deadline (usually April 15th) to allocate a contribution for the prior tax year. In the event you make a contribution between January 1 of this year and the tax filing deadline, you may need to adjust whether it’s counted towards your current tax year or the prior tax year. You can contact us to request a tax year adjustment for a contribution you made between January 1st and the tax filing deadline.

Example

You make a contribution for the current year in January, but then realize you haven’t yet met the maximum contribution limit for the previous tax year. You can request that we allocate your contribution for the prior tax year up until your tax-filing deadline.

Note

If you request an adjustment after you’ve already received your IRS Forms 5498 for that tax year, we’ll issue you a corrected 5498 after the adjustment is processed, which will reflect the adjustment.

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Recharacterizations

Before you begin

We currently support cash-only recharacterizations, so be sure the money you want recharacterized is available for withdrawal. You’ll need to provide the date of the contribution involved and any earnings or losses associated with it. We don’t provide tax advice or assistance with the Net Income Attributable calculation for your recharacterization. For examples of how to calculate your own earnings or loss, check out the IRS Publication 590-A.

A recharacterization is changing the type of IRA that receives the IRA contribution, such as moving a contribution from your traditional IRA account into your Roth IRA account or vice versa. You can contact us to request a recharacterization. Before you can do a recharacterization, you must have both a Robinhood traditional IRA and Roth IRA account.

Example

You may have made a contribution to a Roth IRA, but then you realized your income was too high to qualify for a Roth contribution. A recharacterization allows you to move that contribution to a traditional IRA.

This movement must be completed by the tax filing deadline (plus extension) in the year for which your contribution was made. Generally, recharacterizations are reportable, but non-taxable events. Robinhood will report the withdrawal amount and its associated account to the IRS on Form 1099-R, and the same deposit amount and the associated account that’s receiving it on Form 5498.

Keep in mind

If you invested the contribution, you probably realized a gain or loss associated with it. When you request the recharacterization of the contribution, you must also include any earnings (also known as Net Income Attributable) or losses incurred. However, the earnings/loss calculation is not required if the entire account balance is being recharacterized. Also, you no longer can do recharacterizations for a Roth conversion.

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Disclosures

Funds being contributed into or distributed from retirement accounts may entail tax consequences. Contributions are limited and withdrawals before age 59 1/2 may be subject to a penalty tax.

Contents provided are for informational purposes only and do not constitute tax or investment advice. For specific questions, you should consult a tax professional. Robinhood does not provide tax advice. Links to third party sites are being provided for informational purposes only.

A Robinhood IRA is available to any customer with a Robinhood brokerage account in good standing.

Reference No. 2696584
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