Unconverting a Roth IRA
I have a client who converted $75,000 from his IRA to Roth IRA last year.
He now realizes that he didn’t want to do this.
He has filed an extension on his taxes for 2008.
Can he unconvert the Roth back to an IRA to eliminate the tax liability?
Thanks,
Bob
Permalink Submitted by Alan Spross on Mon, 2009-05-11 16:57
Bob,
Yes, since he filed a timely extension for his 2008 return, he has until the extended due date (10/15/09) to recharacterize all or part of his conversion. “Recharacterization” is the proper description for the process to reverse a Roth conversion. He should contact the IRA custodian prior to September to have time to have the recharacterization completed and the tax return filed by 10/15. A partial recharacterization can be done if desired, if he still wants some of his conversion to stand.
If he has taken a large loss on the conversion, it is best to recharacterize in order to avoid taxes on assets that now have reduced values. He can then convert later hoping for better results.
Permalink Submitted by Bob W on Mon, 2009-05-11 19:11
Thanks Alan.
Very helpful.
I was under that impression, but I wanted to confirm.