Tax Reform and Roth IRA Conversions

(Image credit: This content is subject to copyright.)

Question: I’m thinking of converting money from a traditional IRA to a Roth IRA, but I’m hesitant to make the move in case tax reform reduces my tax rate. Should I wait? --S.L., St. Louis

10 Things You Must Know About Roth Accounts

Answer: Editor's note: Tax legislation in Congress would eliminate the opportunity to reverse a Roth conversion, effective at the end of this year. If you made a Roth conversion earlier this year, watch this issue carefully. If the change becomes law, you would have only until December 31, 2017, to undo a 2017 Roth conversion ... not next October 15 as permitted under current law.

If you convert the money this year and your tax situation changes, you’ll have an opportunity for a do-over. You have until October 15, 2018, to undo a conversion you made in 2017, a process called recharacterization. The money returns to the traditional IRA and you get back the taxes you paid on the conversion (or avoid having to pay the tax bill if you undo the conversion before you file your return). If congressional action means you’re in a lower tax bracket next year so the conversion would cost you less, you can reconvert the account in 2018.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

“If there’s any chance the Roth conversion makes sense, I’d make it now,” says Jeffrey Levine, CEO and director of financial planning for the BluePrint Wealth Alliance in Garden City, N.Y. If it turns out not to be a good move because of a change in the tax law, a market decline or whatever reason, he says, then you can recharacterize.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.