You Can Take a Mulligan

Disclaimer: Please note that the Tax Cuts and Jobs Act of 2017 removed the ability for taxpayers to do any “recharacterizations” of Roth IRA conversions after 12/31/2017. The material below was created and published prior the passage of the Tax Cuts and Jobs Act of 2017. 

Part 9 of 10 Things You Must Know About Roth Accounts

Roth IRA conversions come with an escape hatch. If you converted $50,000 but the Roth is now worth $35,000, you would still owe tax on the $50,000. Undoing the conversion—known as a recharacterization—wipes away the tax bill. Recharacterizing can also pay off if you can’t afford the tax bill or the conversion unexpectedly pushes you into a higher tax bracket.

You have until October 15 of the following year to undo a conversion. So a 2013 Roth IRA conversion can be reversed up until October 15, 2014.

But note: While you can now convert a traditional 401(k) to a Roth 401(k) within a company plan, an in plan conversion cannot be reversed.

 

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