Since the beginning of the year, financial experts have been beating the drums for Roth IRA conversions. And this tax strategy still makes sense for many taxpayers. But you may find, upon closer review, you would be better off if you had left things alone.
Are you completely out of luck? Not necessarily. That tax law provides a fallback position.
Strategy: Recharacterize your Roth IRA. You can convert your Roth back into a traditional IRA if you choose. It’s like it never happened.
The tax law provides a unique benefit for converting to a Roth in 2010, but there are several reasons why you might want to “undo” a conversion made earlier this year. The deadline for recharacterizing is your tax return due date plus extensions. So you have plenty of time—until Oct. 17, 2011—to reverse a 2010 conversion, although you might want to do so sooner.
Here’s the whole story: If you convert a traditional IRA, you’re taxed on the amount t...(register to read more)