DEFINITION of 'Recharacterization'

The treatment of a contribution as being made to another type of IRA instead of the IRA to which the contribution was initially made.

BREAKING DOWN 'Recharacterization'

For instance, an individual may make a participant contribution to a Traditional IRA but may later recharacterize the contribution to a Roth IRA.

Roth IRA conversions can be reversed by means of a recharacterization, however, this movement of assets must include earnings (or losses).

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