Be Alert To The TCJA Tax Reform Attack On IRA Recharacterizations

Lana Dolyna, EA

Lana Dolyna, EA

Tax Consultant

When you convert your existing traditional IRA into a Roth IRA and then reverse the transaction by switching the account back to traditional IRA status, the reversal is called a recharacterization in IRS-speak.

If you had a sizable accumulation in your traditional IRA, the ability to convert that traditional IRA to a Roth IRA and also change your mind when things were backfiring was a terrific tax and financial planning break.

But if you make a Roth conversion transaction in 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) eliminates your ability to recharacterize the account back to traditional IRA status.

And unlike most of the TCJA changes that affect individual taxpayers, this one is permanent.

Look at the new TCJA rule this way: when you make the decision to convert your existing traditional IRA or other retirement plan to a Roth, that’s a final decision in 2018 and beyond.

P.S. The ability to recharacterize an annual IRA contribution still exists. If you would like to discuss recharacterization, please schedule your free strategy session by clicking the green “Schedule Now” button.

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