Changing Your Mind About Your Roth Conversion

I converted my traditional IRA to a Roth last year, but I have since changed my mind about the conversion. Is it too late to switch it back to a traditional IRA and avoid the tax bill?

It’s not too late to undo a 2010 Roth IRA conversion. You have until October 17, 2011, to change the account back to a traditional IRA (technically called recharacterization) and get back money you’ve paid in taxes on the conversion or avoid paying the tax bill. Among the reasons to undo the conversion: The value of your investments decreased after you converted the account to a Roth and you don’t want to pay tax on the higher account balance, or you don’t have the money to pay the taxes you owe.

To undo a Roth conversion, contact your IRA administrator and ask to recharacterize the account back to a traditional IRA. If you already paid the tax bill, file an amended return (using Form 1040X) to get a refund. Or, if you had planned to split your tax bill between your 2011 and 2012 returns, as allowed by a special provision for 2010 Roth conversions only, you can avoid paying the tax bill by recharacterizing your Roth conversion before October 17.

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Keep in mind, however, that the special rule for spreading the tax bill over 2011 and 2012 only applies to 2010 conversions. If you reconvert the account to a Roth IRA this year, you’ll need to pay the tax bill when you file your 2011 taxes.

For more information about IRA conversions, see 7 Myths About Roth IRA Conversions and my Should You Convert to a Roth IRA? column. Also see IRS Publication 590, Individual Retirement Arrangements.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.