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Deadline looms for undoing Roth IRA conversion
By Laura
Bruce • Bankrate.com
If you converted a traditional IRA to a Roth
last year, and are wishing you hadn't, you have until Oct. 15 to undo,
or recharacterize, the conversion.
Here's why you would want to recharacterize.
Your tax bill for converting the traditional IRA to
a Roth was based on the value of the Roth on the day of the conversion.
Suppose your Roth was worth $100,000 when you converted
it, but now is worth only $70,000 because of losses in the value
of your portfolio. Why pay taxes on the $100,000 when the Roth isn't
worth that much now?
If you recharacterize the Roth, you're turning it
back into a traditional IRA. The IRS will treat it as though the
conversion never happened. The recharacterization must be trustee-to-trustee,
meaning the money is transferred directly from the Roth account
back to a traditional IRA without coming to you. So don't wait until
the last minute to get the paperwork done.
The Oct. 15 deadline applies whether you already filed
last year's tax return by the April 15 deadline or if you filed
for extensions. If you have already filed, then you'll also need
to file
an amended return by Oct. 15 to report the recharacterization.
By filing a Form 1040X to amend your return, you will
receive a refund for taxes paid on the conversion.
-- Posted: Oct. 10, 2003
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