Suppose you converted funds in a traditional IRA to a Roth IRA last year, but now you realize that you made a mistake.
Strategy: Undo the Roth conversion. The IRS allows you to “recharacterize” a Roth back into a traditional IRA as long as you meet the timing requirements.
Best of all, you have until the extended deadline for filing 2013 returns—Oct. 15, 2014—to recharacterize a Roth.
Here’s the whole story: The Roth offers the future promise of compounded tax-free growth and tax-free treatment for qualified distributions. A qualified distribution is one that:
- comes after the account owner has had at least one Roth account open for more than five years and
- occurs after reaching age 59½, or after death or disability, or for first-time homebuyer expenses (up to a lifetime limit of $10,000). In addition, under the ordering rules for Roth IRA distributions, contributions to the account are deemed to be withdrawn first, and th...(register to read more)