Roth IRAs: To Recharacterize or Not? - Part 1

Roth IRAs: To Recharacterize or Not? - Part 1

One of the positive provisions of the Pension Protection Act of 2006 was the opportunity for high income earners to convert their traditional IRA to the tax free Roth IRA beginning on January 1, 2010. Prior to 2010, only those with less than $100,000 Modified Adjusted Gross Income (MAGI) could convert to Roth.

The Act also offers a unique opportunity for those who converted in 2010 to spread the taxable income from the Roth conversion equally over 2011 and 2012. Typically the taxable income is realized in the year in which the IRA is converted to Roth.

Roth IRA Conversion Timetable1

The law also provides those converting to Roth the opportunity to change their mind and recharacterize their Roth IRAs back to a traditional IRA (a mulligan). This “free look” opportunity expires the last possible day to file an individual’s tax return (October 15), the year after conversion without penalty or adverse taxation. Those who converted to Roth in 2010 will have until October 17, 2011, to undo their Roth conversions from last year.

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