Deadline Looms for Undoing Roth IRA Conversions

Clients who converted a traditional IRA to a Roth in 2010 face an Oct. 17 deadline for decisions on whether to hit the reset button on these conversions.

When you convert a traditional IRA to a Roth, you typically owe income tax on the amount of the conversion. You're allowed to "recharacterize" the conversion and put the money back into a traditional IRA -- avoiding taxes in the process -- but only if you do so by Oct. 17.

Why would you want to recharacterize? You owe income tax on the amount converted at the time of the conversion, no matter what the account is worth now. So if your account fell in value significantly, it may make sense to recharacterize if it would reduce your tax bill.

We are reviewing all IRA conversions to see which accounts should be recharacterized and which ones should remain Roths. We will contact you if we believe that you would benefit from a recharacterization of your IRA.

The timing of your 2010 Roth conversion has everything to do with whether it will make sense to take advantage of the "do-over" provision. So decisions will be made on a conversion-by-conversion basis rather than a client-by-client basis.

If you'd like more information, or have questions, please contact me.