Tucked inside the tax legislation making its way through Congress is a simple line that would erase Section 408A(d)(6) of the Internal Revenue Code.
Don’t let your eyes glaze over ... particularly if you converted traditional IRA funds to a Roth IRA in 2017. The threatened section of the law is the one that gives you a chance to change your mind and reverse the conversion. If the proposal becomes law, Roth conversions will become irreversible, one-and-done decisions.
A quick refresher: When you convert funds from a traditional IRA to a Roth IRA, you generally must pay tax on the full amount in the year of the conversion. The price of admission is high, but so is the reward. Once your money is in the Roth, withdrawals in retirement – including all future earnings – are tax-free. Money coming out of a traditional IRA is taxed in your top tax bracket.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
As it stands now, the law includes a special “do-over” opportunity. You have until October 15 of the following year to undo the conversion and reclaim the tax you paid on it in the first place. You may want to do this, say, if the value of your account has declined or you have fallen into a lower tax bracket. If you’re in either situation, undoing the conversion and then reconverting later would save you money.
But tax legislation working its way through the House and Senate would eliminate the do-over opportunity, effective at the end of this year.
Action alert: If you made a Roth conversion earlier this year, watch this issue carefully. If the change becomes law, you would have only until December 31, 2017, to undo a 2017 Roth conversion ... not next October 15 as permitted under current law.
If you choose to recharacterize (as the law calls it) a 2017 conversion, call your IRA sponsor for details. If you do transfer your money back into a traditional IRA, you won’t need to report the amount as income on your 2017 tax return filed next spring.
-
How to Turn Your Retirement Dreams into Reality (Despite Your Fears)Stressing over shrinking savings, rising healthcare costs, or losing your purpose can give you chills, but smart money moves can lead to financial freedom and a happy retirement.
-
Figma IPO: Should You Buy FIG Stock?The Figma IPO has plenty of buzz building around it, with the design software company expected to start trading next week.
-
New SALT Deduction Could Put Thousands Back in California Homeowners’ PocketsTax Breaks The federal state and local sales tax (SALT) deduction cap is higher this year, and could translate into bigger savings for Golden State homeowners.
-
Three Surprising Ways Trump’s New Tax Law Could Change Your Child’s Money StoryTax Tips The Trump tax bill could help your child with future education and homebuying costs. Here’s how.
-
Why Your Summer Budget Feels Tighter: Tariffs Push Up InflationTariffs Your summer holiday just got more expensive, and tariffs are partially to blame, economists say.
-
Alabama Tax-Free Weekend 2025Tax Holiday Here’s everything you need to know about the 2025 back-to-school Alabama sales tax holiday.
-
Parents Prepare: Trump's Megabill Brings Three Crucial Tax ChangesTax Changes Are you a parent? The so-called ‘One Big Beautiful Bill’ (OBBB) impacts several key tax incentives that can affect your family this year and beyond.
-
‘I Play Pickleball in Retirement.’ Is It HSA-Eligible?Retirement Tax Staying active after you retire may be easier with these HSA expenses. But there’s a big catch.
-
Mississippi Tax-Free Weekend 2025Tax Holiday Just in time for Prime Day, Mississippi celebrated a tax holiday in July. Find out what back-to-school essentials were included.
-
Ten Cheapest Places to Live in VirginiaProperty Taxes The Commonwealth of Virginia has some cheap places to live. Here are a few if you hate paying property taxes.
