Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: One of my customers did a Roth conversion of a traditional IRA earlier this year, and the Roth account has lost value.  Can she reverse the conversion?  If so, can she then re-convert the traditional IRA to a Roth, thus lowering the tax cost of conversion?

Answer: Yes, the conversion can be reversed.  Treasury regulations permit the reversal of a Roth conversion so long as it is properly completed by the due date (including extensions) for the tax year in which the conversion was attempted.  This reversal is referred to as a recharacterization.

To recharacterize the conversion described, the converted amount plus all earnings must be transferred back to a traditional IRA by the deadline.

The taxpayer can only re-convert a recharacterization at the later of

• 30 days after recharacterization, or
• In the next tax year.

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