Ins and outs of rechacterizations
Q. I converted to a Roth in September, but now the value of a few stocks has dropped. Can I reconvert them? V.H., Sausalito, Calif.
A. Not exactly. First, we believe you’re talking about a recharacterization, not a reconversion. A recharacterization is the technique of undoing a Roth conversion and typically is used when the value of the account declines after the conversion. (In contrast, a reconversion occurs when you recharacterize a Roth IRA into a traditional IRA and then you convert back again. Other special rules apply to reconversions.) You have until your tax return due date, plus any extensions, to recharacterize. But it’s an all-or-nothing proposition. You can’t cherry-pick stocks that have dropped in value and keep others in the Roth. (Rev. Rul. 2000-39)
Tip: A better idea is to wait until tax return time to see where you stand on the entire account.
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