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Turn back clock on Roth conversion

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in Small Business Tax,Small Business Tax Deduction Strategies

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:

  1. comes after the account owner has had at least one Roth account open for more than five years and
  2. 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 In addition, under the ordering rules for Roth IRA distributions, contributions to the account are deemed to be withdrawn first, and th...(register to read more)

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