Tax Reform Changes to Recharacterization of IRAs
Posted: January 30, 2018
Traditional IRAs and qualified plans can be “converted” into a Roth IRA. When the conversion occurs, any untaxed amounts that are rolled over or transferred to the Roth IRA are subject to income taxation in the year of the conversion.
Under prior law, amounts converted from a traditional IRA to a Roth IRA could be “recharacterized” back to a traditional IRA and not owe the income taxes on the conversion. Such a recharacterization could result in reduced income taxes if the value of the assets that were converted from a traditional IRA to a Roth IRA declined after the conversion. Recharacterization of a Roth conversion had been permitted up until your tax return due date for the year the conversion occurred plus extensions.
The Tax Cuts and Jobs Act provides that a conversion of a traditional IRA, SEP or SIMPLE to a Roth IRA may no longer be recharacterized if the conversion occurs in 2018 or thereafter. However, the IRS has recently confirmed that a Roth IRA conversion that occurred in 2017 may still be recharacterized as a contribution to a traditional IRA if the recharacterization is made by October 15, 2018.
1251 W. Glen Oaks Lane, Mequon, WI 53092
F: (262) 238-6999