Roth Recharacterization under new law
Under the new tax law, for 2017 traditional IRA conversions, does a taxpayer have until 10/15/2018 to recharacterize if they choose not to pay tax on the conversion or does it have to be done by 12/31/17. I have read several articles that stated it must be done by year end but I disagree. Here is what the new law states:
“(a) I G .—Section 408A(d)(6)(B) is amended by adding at the end the following new clause:
“(iii) CONVERSIONS.— Subparagraph (A) shall not apply in the case of a qualified rollover contribution to which subsection (d)(3) applies (including by reason of subparagraph (C) thereof).”
(b) Effective Date .—The amendments made by this section shall apply to taxable years beginning after December 31, 2017.”
Since the effective date applies to taxable years beginning after 12/31/17, that to me means that for conversions made for the tax year 2017, a taxpayer would still have until they file their return with extensions to recharacterize. I called both Fidelity and Schwab today and neither would commit and said to speak to tax advisor. Thoughts/comments?
Permalink Submitted by Alan - IRA critic on Wed, 2017-12-27 03:37
I happen to agree with you that a recharacterization of a 2017 conversion applies to 2017 regardless of when it is processed and therefore should be processed into next year. However, as far as I know no official source has confirmed that so there is still considerable debate. Vanguard has apparently stated that they will process rechararcterizations of 2017 conversions up to 10/2018 which might indicate that they have received official guidance from their IRS contacts, Congressional tax writing committee etc. Apparently there will be no official guidance issued until after 1/1 at this point. As for Fido and Schwab, they have more leverage in getting to someone in authority than your individual tax advisor.