Did you convert your Traditional IRA to a Roth IRA? Do you worry you may have done it too soon if Tax Reform Passes?
A lot of people are asking the question, “What if tax reform passes? What will happen since I When you convert a traditional IRA to a Roth IRA, you have to pay the tax on the conversion. However, individuals frequently do that so they can take advantage of future tax-free accumulations. Distributions from Roth IRAs are generally tax free, including any earnings (accumulations) while the account is a Roth account.
Are you considering converting your traditional IRA to a Roth IRA in 2017?
So what if tax reform passes? Are you hesitant to do so because of uncertainty about the timing and specifics of the Trump Administration’s and Congress’ proposal to cut tax rates for individuals? Have no fear! You can convert your traditional IRA to a Roth IRA this year. And, what if tax reform passes with lower tax rates effective next year? You can undo the conversion for 2017 and re-convert for 2018.
Tax Law Allows Individiduals to Undo an IRA Transfer and Reconvert
IRA Conversion Scenario
Anyone can use this same process for any purpose. So, for example, if you converted your regular IRA to a Roth IRA in 2017 and Congress enacts tax reform effective in 2018. The outcome is that you can recharacterize or undo your 2017 conversion back to a traditional IRA. However, the recharacterization must be complete by the extension due date of your 2017 tax return. For 2018 that is October 15th. If you choose to, you then can then reconvert the traditional IRA to a Roth IRA in 2018 and take advantage of the new lower tax rates.