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The Online Advisor - July 1999
IRS says it was wrong about Roth IRAs
Just prior to the April 15 tax filing deadline, the IRS informed taxpayers they had until April 15 to reverse Roth IRA conversions for which they didn’t qualify. Otherwise, the converted amount would be treated as a taxable withdrawal and could also be subject to the 10 percent early withdrawal penalty.
Taxpayers did not qualify for converting a regular IRA to a Roth IRA if their income, on either a single or joint return, exceeded $100,000. Married taxpayers filing separately were ineligible for Roth conversions.
According to the IRS, even those eligible for a conversion could not undo the conversion once they filed their 1998 tax return and the April 15 deadline passed.
After a closer look at the tax law, the IRS now admits it was wrong. Taxpayers who filed by April 15 can undo a 1998 conversion any time up to October 15, 1999, (the deadline for filing fully extended 1998 tax returns). The taxpayer must then file an amended 1998 tax return within three years.