Proposed Sec 1501 of Tax cut and Jobs Act
This Section disallows recharacterizations of IRA contributions and conversions effective 2018. The following is a summary from the ASPPA:
“IRA Contribution/Conversion Recharacterization Rule
Individuals are currently allowed to recharacterize either contributions or conversions to a traditional IRA into a Roth IRA and vice versa [IRC § 408A(d)(6)]. However, Section 1501 would repeal that provision in the tax code (raising $500 million in revenue over 10 years).”
Permalink Submitted by David Rains on Wed, 2017-12-06 22:41
The proposed effective date is confusing. If an IRA is converted to a Roth during the 2017 tax year and 408A(d)(6) is still in affect during the 2017 tax year, will you still be able to recharacterize the Roth back to a traditional IRA before the due date of the 2017 tax return under this proposed legislation? Or, can you simply no longer recharchterize this IRA after 12/31/17?
Permalink Submitted by Alan - IRA critic on Thu, 2017-12-07 00:52
Since the proposal is vague, it might end up that the IRS will have to clean up the details. Most pros suggest being conservative and reviewing all 2017 conversions in terms of them being irrvocable after year end, just to be safe. However, the IRS may also think that those who have converted with the expectation that they have until 10/2018 to recharacterize are not getting a fair shake here, and they might issue regs that allow conversions done prior to 1/1/2018 to be recharacterized. Pretty sloppy not to have included clearer language in these bills, but this could also be clarified before the legislation is official. Another possible solution if the law passes right at year end would something like a 60 day period in 2018 before 2017 conversions become irrevocable.
Permalink Submitted by David Mertz on Thu, 2017-12-07 02:21
It’s now section 13611 of H.R. 1. It says (as it did in the original section 1501), “EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2017.” Since the recharacterization would affect the 2017 tax return, it seems to me that the recharacterization would also be “for” 2017, even if performed in 2018, and the repeal of the existing section 408A(d)(6) would be effective for conversions or contributions taking place in 2018 and beyond. However, the IRS might interpret it differently. I would expect the IRS to issue a transition rule clarifying the issue.