For Our Clients

Educational Resources

By Theresa Fry, Senior Vice President and Manager, IRA’s and Retirement Planning

Print This Post Print This Post

One of the key retirement account changes within the 2018 tax reform package was a change impacting Roth IRA conversions, and more specifically, “undoing” a Roth conversion. Prior to 2018, if you completed a Roth conversion, you had the ability to reverse that conversion through October 15th of the following year (called a “recharacterization”) and “undo” the tax liability associated with the conversion.

Beginning in 2018, the recharacterization of Roth conversion contributions will no longer be permitted. For example, if you complete a Roth conversion in 2018 that is valued at $100,000, you will owe income taxes on the additional $100,000 of income that resulted from the conversion. You will not be able to reverse the conversion (or the income tax liability) if the value of the converted investments drop or you have otherwise changed your mind.

The IRS has already been asked to clarify if this applies to all conversions, including conversions completed in 2017, or just to those completed after January 1, 2018. Until this clarification is provided, discuss any Roth recharacterization with your tax professional before proceeding.

Benjamin F. Edwards & Co. does not provide tax advice, therefore it is also important to consult with your tax professional for additional guidance tailored to your specific situation.

January 11, 2018 |