Roth IRAs: Testing Your Knowledge

Date September 15, 2016

Question: If you converted a traditional IRA into a Roth IRA early in the year, how long do you have to change your mind and “recharacterize” back into a traditional IRA?

  1.   Any time within three years after the due date of the tax return for the current year.
  2.   Before the end of next year.
  3.   You generally have until October 15 of next year.
  4.   It’s too late. You’re stuck with the tax consequences. The conversion is irrevocable.

The answer is C. You generally have until October 15 of the next year to recharacterize an IRA conversion made early in the year.

“Recharacterizing” your Roth back into traditional IRA status might be a good idea if the value of the Roth account has dropped significantly since the conversion date. The process of “recharacterization” allows you to completely avoid the tax bill triggered by your earlier Roth conversion transaction. But there’s a deadline if you want to do this.

Please contact HBK if you made a Roth conversion transaction and are now having second thoughts.

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