THE ROTH CORNER

September 2011

Deadline Approaching for Undoing a 2010 Roth IRA Conversion.

If you converted a traditional IRA to a Roth IRA in 2010 and your Roth IRA has sustained losses as a result of the recent market downturn, you may want to consider whether it makes sense to undo (recharacterize) your conversion. You have until October 17, 2011, to undo your 2010 conversion. (If you've already filed your federal income tax return for 2010, you'll need to file an amended return if you recharacterize.) A recharacterization can help you avoid paying income tax on the value of IRA assets that have been lost in the downturn. When you recharacterize, your conversion is treated for tax purposes as if it never happened. For example, assume you converted a fully taxable traditional IRA worth $100,000 to a Roth IRA in 2010. However, due to the recent market volatility, that Roth IRA is now worth only $60,000. If you don't undo the conversion, you'll pay federal (and possibly state) income tax.