Tax Tip of the Week
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Reverse 2000 Roth conversion before October 15 to cut taxes
For the week of
October 1, 2001
Many investors have seen the value of their retirement portfolio decline since early
2000, particularly in the past few weeks. If you converted your regular IRA to a Roth last year, you may be regretting
your decision. The amount of tax on a conversion is based on the value of the IRA on the date of the rollover.
Paying income tax on a Roth IRA rollover is bad enough, but paying tax on value that is no longer there is like
pouring salt in the wound. Fortunately, you can still reverse a 2000 Roth rollover and eliminate the tax bill on
the conversion.
Reverse the Roth conversion by October 15, 2001. If you converted a regular IRA to a Roth IRA in 2000 and now want to switch back to a regular IRA,
you have until October 15, 2001, to do so without penalty. The IRS calls reversing the transaction a "recharacterization."
A recharacterized conversion is treated as though it had not occurred. If done properly, there will be no tax due
on the Roth rollover.
Amend your 2000 tax return to receive refund. If you already filed your 2000 tax return, you can still reverse the 2000 Roth conversion as long
as your tax return was filed by April 15, 2001, or the extended due date. After you reverse the Roth rollover,
you must file an amended return to receive a tax refund.
The IRA rules are very complex. If you would like more information about
reversing your Roth conversion, please call us.
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