There's ambiguity in the (soon to be signed) bill about whether one can recharacterize 2017 tax year conversions into 2018. See, e.g. this
M* video that states that "There's a little bit of uncertainty as to, does that apply to just conversions done in 2018?"
That question aside, I've been looking at recharacterization forms. I'm used to the financial institution practically insisting that it calculate the earnings on the recharacterized amount. For example:
Schwab;s form let's them do the calculation, or if you want to do it, disclaims responsibility for correctness ("hold harmless").
T. Rowe Price's form says that "T. Rowe Price will calculate earnings unless you attach a separate page with your own earnings calculation."
Fidelity's form doesn't even give you the option of calculating the earnings. You just specify the amount, and it will recharacterize that amount "and any applicable earnings attributable" automatically.
So I was quite surprised to see the Merrill Lynch (both Merrill Lynch and Merrill Edge) does not provide this calculation for you. In fact,
its form states that "You are responsible for calculating any earnings/losses attributable to the original contribution."
Limited service brokerages like this have their uses, especially if you don't need the particular services they're lacking. (ML also cannot convert or recharacterize fractional shares of mutual funds, though I've done that at other brokerages and fund houses with no difficulty.)
If you're shopping for an IRA custodian, the ability to handle conversions/recharacterizations cleanly would be a good item to add to your checklist. It never dawned on me that I needed to check for this.
Comments
BUT: This all becomes academic for Tax Year 2018 and future. The general consensus is that Tax Year 2017 recharacterizations will be permitted.
NOW: A Big Warning to those of us who used to do multiple IRA/401K to Roth conversions and then pick the best of the litter to keep as Roth and throw the runts back into the Traditional IRA/401K via a recharacterization... I am not a tax attorney, but it sure looks like the Trump-Republican tax bill recently passed takes the ability to do recharacterizations completely off the table for Tax Year 2018 and the future...
Once you do a conversion, it is irrevocable.
Plan accordingly. Don't get trapped pushing yourself into a higher bracket or Medicare Surcharge area.
Per Vanguard:
IRA recharacterizations of conversions are going away. Chief among the bill's features affecting retirement savers is the elimination of an investor's ability to recharacterize a conversion to a Roth individual retirement account (IRA) after the 2017 tax year.
[ https://advisors.vanguard.com/VGApp/iip/site/advisor/researchcommentary/article/IWE_InvComVanguardOnTaxBill ]
A problem is that no one (most importantly, the IRS) is willing to say what this means. I noted the uncertainty above, and it's echoed in the Vanguard page you cited:
"But it's unclear under the new law whether retirement savers will have until the end of this year or until October 15 of next year to do a [2017] recharacterization. We hope that the IRS will provide clarifying guidance on this in the near future."