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If the transfer results in a change in the basis of the traditional IRA of either spouse, both spouses must file Form 8606 and follow the directions in the instructions for that form. Converting From Any Traditional IRA Into a Roth IRA Allowable conversions. You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a con- version contribution. If properly (and timely) rolled over, the 10% additional tax on early distributions won’t apply. However, a part or all of the distribution from your tradi- tional IRA may be included in gross income and subjected to ordinary income tax. You must roll over into the Roth IRA the same property you received from the traditional IRA. You can roll over part of the withdrawal into a Roth IRA and keep the rest of it. The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions) and may be subject to the 10% additional tax on early dis- tributions. See When Can You Withdraw or Use Assets, later, for more information on distributions from traditional IRAs and Early Distributions in Pub. 590-B for more infor- mation on the tax on early distributions. Periodic distributions. If you started taking substan- tially equal periodic payments from a traditional IRA, you can convert the amounts in the traditional IRA to a Roth IRA and then continue the periodic payments. The 10% additional tax on early distributions won’t apply even if the distributions aren’t qualified distributions (as long as they are part of a series of substantially equal periodic pay- ments). Required distributions. You can’t convert amounts that must be distributed from your traditional IRA for a particu- lar year (including the calendar year in which you reach age 701/2) under the required distribution rules (discussed in Pub. 590-B). Income. You must include in your gross income distribu- tions from a traditional IRA that you would have had to in- clude in income if you hadn’t converted them into a Roth IRA. These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. You don’t include in gross income any part of a distribu- tion from a traditional IRA that is a return of your basis, as discussed under Are Distributions Taxable in Pub. 590-B. If you must include any amount in your gross in- come, you may have to increase your withholding or make estimated tax payments. See Pub. 505, Tax Withholding and Estimated Tax. CAUTION ! CAUTION ! Recharacterizations You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution. To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. If the transfer is made by the due date (including extensions) for your tax return for the tax year for which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. If you recharacterize your contribution, you must do all three of the following. • Include in the transfer any net income allocable to the contribution. If there was a loss, the net income you must transfer may be a negative amount. • Report the recharacterization on your tax return for the year during which the contribution was made. • Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA. No recharacterizations of conversions made in 2018 or later. A conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, made in tax years beginning after December 31, 2017, cannot be recharacterized as having been made to a traditional IRA. If you made a conversion in the 2017 tax year, you have until the due date (with exten- sions) for filing the return for that tax year to recharacterize it. No deduction allowed. You can’t deduct the contribu- tion to the first IRA. Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. The contribution won’t be treated as having been made to the second IRA to the extent any deduction was allowed for the contribution to the first IRA. Conversion by rollover from traditional to Roth IRA. You receive a distribution from a traditional IRA in 1 tax year. You then roll it over into a Roth IRA within 60 days of the distribution from the traditional IRA but in the next year. For recharacterization purposes, you would treat this transaction as a contribution to the Roth IRA in the year of the distribution from the traditional IRA. Effect of previous tax-free transfers. If an amount has been moved from one IRA to another in a tax-free trans- fer, such as a rollover, you generally can’t recharacterize the amount that was transferred. However, see Traditional IRA mistakenly moved to SIMPLE IRA below. Traditional IRA mistakenly moved to SIMPLE IRA. If you mistakenly roll over or transfer an amount from a tra- ditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA. Chapter 1 Traditional IRAs Page 29