How to Lower Your Adjusted Gross Income

You can take advantage of more tax breaks and a Roth IRA when your AGI falls below certain levels.

To take advantage of the drop in the stock market, I decided to convert a rollover IRA to a Roth earlier in the year. Unfortunately, now it looks like my adjusted gross income will be a smidgen more than the $100,000 limit allowed for this conversion. Is there a way to reverse the transaction to convert it back to a traditional IRA without incurring penalties?

Yes, there is. As you mentioned, you can convert a traditional IRA to a Roth only in a year when your modified adjusted gross income is less than $100,000 (whether you're married or single). If you discover that your income was too high, you can ask your IRA administrator to undo the conversion and move the money back to a traditional IRA, a process called recharacterization. You have until October 15, 2009, to undo a 2008 conversion, but it's best to make the change before April 15, 2009, so you won't need to report the original conversion when you file your 2008 taxes.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

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.

Sign up

To continue reading this article
please register for free

This is different from signing in to your print subscription

Why am I seeing this? Find out more here

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

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.