Can a ROTH conversion be reversed?
I converted a traditional IRA account to a ROTH in 2007. Taxes were paid on the conversion upon filing of 2007 taxes. The investments are in mutual funds and the value has dropped considerably since the conversion. Therefore I paid more taxes than I would have paid if I had waited until now to make the conversion. Is there a way to undo the conversion for 2007 and redo it now?
Permalink Submitted by Alan Spross on Wed, 2008-03-12 05:53
Yes, you can recharacterize the conversion, but you must wait at least 30 days after processing the recharacterization before re converting that amount. But you could get around this requirement by converting a slightly different amount now to a different Roth IRA account. You would then recharacterize last year’s conversion when you wish up to the extended due date of 10/15/08.
Since you have already filed 2007, if you have the cash float, you could pay by 4/15 and wait to see if the market recovers enough before recharacterizing. Any partial or total recharacterization will result in your having to file an amended return anyway.
You cannot reconvert the same amount in the same year at all, but since your other conversion was in 2007, you only have the 30 day waiting period. There are various strategies using multiple conversions with the intent to recharacterize the least profitable ones from the beginning, but if you do this, you must be very careful not to fall victim to the reconversion timing restrictions.