IRA conversions are reversible - - ModernMedicine

IRA conversions are reversible
Publish date: Aug 6, 2010
By:  Aaron Skloff, AIF, CFA, MBA
Source: Medical Economics

Q: After evaluating all the pros and cons, we decided earlier this year to convert our traditional IRAs to Roth IRAs. Can we reverse the conversion and its tax implications if the financial markets drop?

A: Yes. Just as the IRS permits you to convert all or a portion of your traditional IRAs to Roth IRAs, it also permits you to reverse all or a portion of the conversion through a "recharacterization."


Aaron Skloff
When you recharacterize, you reverse the conversion and its full tax implications. For example, let's say on March 1 you converted $100,000 of assets and generated $30,000 in taxes, but by the end of 2010, the value of the assets has declined. Under this scenario, the recharacterization would reverse the full tax obligation, and the assets would be moved from the new Roth IRAs to the original, traditional IRAs.

The deadline for recharacterizing is the extended due date of your tax return for the year of the contribution or conversion. For the taxable year 2010 (the example above), this would be October 15, 2011 (the maximum six-month extension from April 15, 2011.)

Because conversions and recharacterizations can carry significant income and estate tax implications, you should consult closely with your accountant and financial adviser before undertaking these steps.








Send your money management questions to medec@advanstar.com
(please include your regular postal address). Answers to our readers' questions were provided by Aaron Skloff, AIF, CFA, MBA. He is chief executive officer of Skloff Financial Group, a registered investment advisory firm based in Berkeley Heights, New Jersey.

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Source: Medical Economics, 8/6/2010
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