How to Reconvert a Roth IRA
Reconverting a Roth IRA can save you a significant amount of money if the investments you converted have lost money. The amount of tax you owe on a Roth conversion depends on the value at the time of the conversion. For example, if you were to convert mutual fund shares worth $30,000 and the market crashed shortly thereafter, leaving the value of the shares at only $15,000, you would still owe income taxes on $30,000. However, you could choose to reconvert to cancel the transaction to avoid paying taxes on non-existent value. You must reconvert by Oct. 15 of the year after the conversion.
Other People Are Reading
Instructions
-
-
1
Contact your financial institution that has your Roth IRA to obtain the form to reconvert your Roth IRA. The name of the form changes at different institutions, so be sure that you ask for the form that allows you to recharacterize your Roth IRA conversion back to a tax-deferred account.
-
2
Complete the Roth IRA recharacterization form. You will need to indicate that you are reconverting a Roth conversion rather than changing an annual contribution. Once you have submitted the form, your financial institution will process the recharacterization.
-
-
3
Document the conversion and reconversion on your income tax return. On form 1040, note the amount of the conversion and reconversion on line 15a. On line 15b, enter $0 because when you reconvert the entire amount, you incur no income taxes. If you have already filed your income taxes for the year, you can file an amended return using form 1040X. On the form 1040X, recalculate your taxes due after taking out the amount of the conversion from your taxable income and note that you performed a Roth recharacterization as your reason for filing the amended return.
-
1
References
Resources
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
