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As a result of the Tax Cuts and Jobs Act, signed into law on December 22, 2017, recharacterizations of conversions will soon be a thing of the past. But you have one option left within the next few weeks.
You have until October 15, 2018, to recharacterize your 2017 Roth IRA conversion.
Previously, you could convert a Traditional IRA to a Roth IRA and would have until October 15 of the next year to call a “do-over.” This “recharacterization” of the IRA type helps you avoid the tax hit associated with the account conversion. Account holders could examine the tax ramifications, current markets and (in the case of this year) lower tax rates and determine if the conversion still makes sense.
You may wonder, “What’s so big about October 15?” The recharacterization must be completed by the last date, including extensions, for filing or refiling the prior-year tax return. This date is typically on or about October 15.
But remember, this option is going away. The ability to recharacterize IRA conversions applies only to conversions made last year (2017).
This allowance will not extend to conversions made on or after January 1, 2018. The Tax Cuts and Jobs Act thereby prohibits any recharacterization of a conversion made in 2018 or later. Each account holder must now determine if a Roth conversion still makes sense without the ability to recharacterize.
As a reminder, you may still recharacterize in order to fix some IRA contribution mistakes. So, regular contributions to Traditional and Roth IRAs may still be recharacterized as before.
Are you considering a recharacterization of a 2017 Roth conversion? Time is running out! Consult with your team of professionals right away to determine whether this is right for you. And if you choose to recharacterize a 2017 conversion of your Kingdom Trust IRA, you must complete our Recharacterization Notice and Transfer Direction form.
For more on recharacterizations, visit the IRS FAQs on recharacterizations of IRA contributions.