The Tax Cuts and Jobs Act has repealed the rule allowing recharacterization of IRA contributions.

Prior Law

Through December 31, 2017

Both regular contributions and conversion contributions to a Roth IRA can be recharacterized as having been made to a traditional IRA.

New Law

Effective for tax years beginning after December 31, 2017

The rule that allows a contribution to one type of IRA to be recharacterized as a contribution to the other type of IRA does not apply to a conversion contribution to a Roth IRA. Thus, recharacterization cannot be used to unwind a Roth conversion.

Commentary

A taxpayer is still allowed to convert traditional IRA dollars to a Roth IRA, which generates taxable income. By disallowing the recharacterization of converted Roth IRA amounts, the taxpayer does not have the option of recharacterization if the current value of the converted amount decreases so that the taxable amount upon conversion is greater than the current value of the funds.

Article was written by: Matt Cantlon, CPA

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Lance Campbell
I am the partner-in-charge of the Rochester, MN office. I provide tax services to individuals, businesses and agricultural clients. I also provide compilation services and am QuickBooks Certified ProAdvisor.

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