Making an IRA change could be tax-smart

Posted on Aug 18, 2015

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 “recharacterization.” You can recharacterize any amount of your original conversion, no matter your income, and for any reason. When you recharacterize the entire conversion amount, you put yourself back in the position you were in originally.

Why would you want to recharacterize? 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. Recharacterizing means you save tax dollars.

Here’s another beneficial recharacterization 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.

Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.

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