Roth IRA Conversions

I’m Kevin McCormally of Kiplingers with today’s tax tip. Last years terrible stock market wrecked havoc on so many levels. But there is one group of investors who can limit the damage retroactively. I’m talking about people who convert regular IRAs to Roth IRAs in 2008 and saw the value of their Roth plummet. If you do nothing, you have to report the full amount you converted as taxable income and pay tax in your top tax bracket even on money that has disappeared.

But there is way around that, you can undo the conversion using something the IRS calls “recharacterization.” Basically, you tell the IRA sponsor to put your money back in the regular IRA. Do this by April 15th and you don’t have to report the conversion on your 2008 return. But you say you really want a Roth with its promise of tax withdrawals and retirement. Don’t worry, after 30 days you can reconvert back to a Roth and pay tax only on what’s the account of the time.

For more tax tips to help lower your tax bill, visit the Kiplinger tax center at www.kiplinger.com/taxcenter.


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