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IRA Conversions and Recharacterizations

The new tax law that was enacted on December 22, 2017 eliminates that ability of taxpayers to recharacterize a conversion from a traditional IRA to a Roth IRA, effective for tax years beginning after December 31, 2017.

Such recharacterizations have been used in the past by taxpayers who converted balances in a traditional IRA into a Roth IRA and then wanted to undo the conversion.  When a taxpayer converts from a traditional IRA to a Roth, the balance in the account is generally included in the taxpayer’s gross income during the year of the conversion.  If the taxpayer changes his or her mind about the conversion, that taxpayer had the ability to undo or recharacterize the conversion, resulting in the converted funds (along with any earnings allocable to it) returning to the traditional IRA account, as if the original conversion never occurred.

The IRS recently reminded taxpayers that the ability to recharacterize or undo a conversion from a traditional IRA to a Roth IRA remains available for conversions that occurred during the 2017 tax year.  Taxpayers have until the due date of the 2017 tax returns (including extension) to recharacterize conversions that occurred during 2017.

The information provided herein is provided with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional service. As such, M + O = CPE, Inc. and the author disclaim any responsibility or liability for the information supplied herein or the application of said information.