Ask Terry Questions Roth conversion and recharacterization

Roth conversion and recharacterization

By Terry Savage on February 26, 2018 | Investments

I'd like to convert some money in my IRA to a Roth, as I've got some "room" before I hit the max in my tax bracket. I understand that I have until April 15, 2018 to make the recharacterization. I thought I paid tax on the money I convert (let's say $10k) by adding the $10k to my total income for 2017 and report it as such on my 2017 taxes. Is this correct? I just read an article that left me thinking I wouldn't pay those taxes until 2018. Help

Terry Says

If you did the conversion in 2017, you pay taxes when you file your 2017 return.  That's the return you file in April, 2018.  And because you converted in 2017 you still have the chance to do a re-characterization (reconversion) -- which might be appealing if the market falls and you think you paid taxes on a "too high" sales price! BUT -- AND THIS IS IMPORTANT -- the new tax law DOES AWAY WITH ROTH RECHARACTERIZATIONS!  The new tax law means starting this year, you can no longer recharacterize traditional IRAs once they have been converted to Roth IRAs, so you’re stuck with the tax consequences even if the market drops. Read more: New Law Eliminates Roth Recharacterization Rule | Investopedia Follow us: Investopedia on Facebook

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