No More Recharacterization For Conversions
While Roth IRA contributions can still be recharacterized, a conversion of traditional IRA assets to a Roth IRA CANNOT be recharacterized. In the past, some taxpayers recharacterized the transaction if they decided the tax liability was too high or if it triggered other tax issues such as the taxation of Social Security benefits or the exposure to the 3.8% Medicare surtax on investment income. Others would simply undo the conversion if the Roth IRA ended up declining in value. For example, if a taxpayer converted a $75,000 IRA that declined in value to $60,000, there would not be an advantage in realizing the $75,000 in income for an account that has lost value. Now without this ability to recharacterize conversions, much more thought needs to be put into a Roth conversion before pulling the trigger.
Lower Taxes Equate To Savings
When To Do A Conversion
The decision to convert can be complex, depending on the potential for overall tax rates to increase (or decrease) in the future, and a taxpayer’s likely tax bracket in retirement and ability to pay the conversion tax with non-retirement funds. With any tax planning strategy, it is important to discuss the impact of an IRA conversion on your overall financial plan with a qualified tax professional.
The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Beyond Balanced Financial Planning LLC (referred to as "BBFP") disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. BBFP does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or nonsecurities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall BBFP be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if BBFP or a BBFP authorized representative has been advised of the possibility of such damages. In no event shall Beyond Balanced Financial Planning LLC have any liability to you for damages, losses, and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.