Recharacterization of Roth IRA

If you filed for an extension on your taxes, your October 15 deadline is coming up.  If you converted your IRA to a Roth IRA last year, another thing you might want to consider by mid-October is recharacterization, which allows you to undo your conversion.  

There are two reasons you might want to undo your conversion. First, if you have lost money in your account, you’ll still have to pay tax on the higher amount you converted.  If you recharacterize, all of that tax liability disappears.  Then, thirty days later, you can convert that money into a Roth and only have to pay tax on the lower amount when you file your 2012 tax return. Second, if you’re in a lower tax bracket, recharacterizing can help you take advantage of beneficial tax rates. 

See Dan Caplinger, Don’t Miss Your Chance For A Roth IRA Do-Over, DailyFinance, Sept. 17, 2012. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.