Making an IRA change could be tax-smart
Did you convert all or part of a retirement account to a Roth during 2014?
And do you now wish you hadn't? Here's some good news: You have until October
15, 2015, to change your mind, even if you already filed your federal income
tax return.
The tax term for undoing the conversion and switching your funds back to a
traditional IRA from a Roth is "re characterization." You can
re characterize any amount of your original conversion, no matter your income,
and for any reason. When you re characterize the entire conversion amount, you
put yourself back in the position you were in originally.
Why would you want to re characterize? Perhaps you're now in a higher tax
bracket than you expected and reconverting will reduce your income. Or maybe
your investments didn't do as well as you anticipated and the value in your
account has declined. Leaving the money in the new Roth means you pay tax on
the original amount you converted. Re characterizing means you save tax dollars.
Here's another beneficial re characterization
rule: You don't need to worry
about being locked out of future transfers. You can reconvert the same funds to
a Roth after a waiting period.
If you're considering undoing last
year's Roth conversion, please call for more information. We're here to help
you make the right decision.
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