Allison Alley, CFP® walks you through the details of what a Roth conversion is and how recharacterization could be an integral part of your tax planning strategy.
“Today we’re going to talk about Roth conversions and recharacterizations. A lot of people are trying to transition
money from their IRAs to their Roth’s.
The benefit of that is you’re taking money that’s pre-tax and is going to be fully taxable in retirement, moving it to after-tax money and thus tax-free upon withdrawal.
The deadline to do Roth conversions in each calendar year is the year-end. So if you’re going to be moving money you’ve got to get it done by December 31st.
The nice thing about conversions is the ability to undo them. You can recharacterize should you end up doing more than what you want to.
The deadline to recharacterize and take the money out of the Roth and shift it back to the traditional IRA is your tax
filing deadline. So April 15th.
If you file an extension you’ve actually got all the way until October 15th to get that recharacterization finalized.
This year (2017) is actually a little bit different. The tax filing deadline was April 18th and if you file an extension you’ve actually got all the way until October 16th.
If you need any more information please go to purefinancial.com.”