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Should You Undo a Roth IRA Conversion?
Peggy Vyborny

Converting a traditional IRA to a Roth IRA can provide tax-free growth and the ability to withdraw funds tax-free in retirement. However, what if you convert a traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover that you would have been better off if you had not converted it? Fortunately, it is possible to undo a Roth IRA conversion, using a “recharacterization.”

Reasons to Recharacterize

There are several possible reasons to undo a Roth IRA conversion. For example:

  • You lack sufficient liquid funds to pay the tax liability;
  • The conversion, combined with your other income, has pushed you into a higher tax bracket;
  • Your income is likely to drop in retirement, reducing or eliminating the benefits of a Roth IRA; and
  • The value of your account has declined since the conversion, which means you would owe taxes partially on money you no longer have.

Generally, when you convert to a Roth IRA, you have until October 15 of the following year (if you extend your tax return) to undo it. Then, you must wait to once again convert to a Roth IRA until the later of: 1) The first day of the year following the year of the original conversion, or 2) the 31st day after the recharacterization.

Keep in mind that, if you reversed a conversion because your IRA’s value declined, there is a risk that your investments will bounce back during the waiting period. This could cause you to reconvert at a higher tax cost.

Recharacterization in Action

The following example illustrates the process. Nick has a traditional IRA with a balance of $100,000. In December 2016, he converts it to a Roth IRA and normally would owe $33,000 in federal income taxes in April 2017. However, Nick extends his return and, by September 2017, the value of his account has dropped to $80,000.

On October 1, Nick recharacterizes the account back to a traditional IRA and files his return to exclude the $100,000 in income. On November 1, he reconverts the traditional IRA, whose value remains at $80,000, to a Roth IRA, and reports that amount as income on his 2017 tax return. This time, he owes only $26,400 in taxes.— Nick deferred the tax liability for a year and also saved $6,600.

Keep Your Options Open

If you convert a traditional IRA to a Roth IRA, monitor your financial situation. If the advantages of a Roth IRA diminish, talk to your financial advisor about your options.

For more information, contact Peggy Vyborny at, or call her at 312.670.7444. Visit to learn more about our Wealth Management Services.

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