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December 14, 2005

The Bottom Line: How to recharacterize IRA conversions that have lost value

October 08, 2008 02:57 PM EDT

views: 389 | comments: 9

Individuals who completed Roth conversions last year have until October 15 of this year to reverse the conversion, says Denise Appleby, author of The Retirement Dictionary.

"This reversal is done as a recharacterization," Appleby says. "A recharacterization is a useful tax strategy for individuals who converted amounts that has since lost significant market value. Individuals who recharacterize a conversion and reconvert the amount at a later date."

Click here for details on Roth IRA recharacterizations. In addition, the Appleby NIA Worksheet can be used to calculate the net income attributable (NIA) on a conversion amount that is being recharacterized.

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Tags: retirement savings, retirement account, money, personal finance, money correspondent, taxes, conversion, traditional ira, roth ira, jennifer meacham, jennifer d meacham, maven meacham

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Comments: 9

Larry H. Oct 8, 2008, 3:24pm EDT

thanks for sharing

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donna h. Oct 8, 2008, 3:31pm EDT

thanks

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Rose H. Oct 8, 2008, 4:14pm EDT

Thank you.

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Mary M. Oct 8, 2008, 4:21pm EDT

Doesn't apply to me. Thanks though.

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Hildy R. Oct 8, 2008, 4:35pm EDT

Quite complicated to think about. It is good you point out that you do not have to live with your decision and you have options.

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Ms. Meacham: Money Maven Oct 8, 2008, 4:40pm EDT

Exactly my point Hildy. Thank you for calling this out.

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Ms. Meacham: Money Maven Oct 8, 2008, 4:43pm EDT

Yes Mary, this applies to anyone who made a conversion from a Traditional IRA or other retirement account to a Roth IRA in 2007. It also really only becomes a relevent situation if that Roth IRA lost in value since the conversion. However, given the state of the current stock market, it's not hard to guess that a lot have. I'm delighted to hear that either a) your Roth IRA hasn't lost value or that b) you didn't make a conversion and thus don't now have to decide what the best decision is for your retirement arrangement moving forward.

Thanks for the note.

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