IRA conversions are reversible

August 6, 2010

Learn how to reverse and IRA/Roth IRA conversion and its tax implications if markets drop.

Q: After evaluating all the pros and cons, we decided earlier this year to convert our traditional IRAs to Roth IRAs. Can we reverse the conversion and its tax implications if the financial markets drop?

A: Yes. Just as the IRS permits you to convert all or a portion of your traditional IRAs to Roth IRAs, it also permits you to reverse all or a portion of the conversion through a "recharacterization."

Because conversions and recharacterizations can carry significant income and estate tax implications, you should consult closely with your accountant and financial adviser before undertaking these steps.

Send your money management questions to medec@advanstar.com (please include your regular postal address). Answers to our readers' questions were provided by Aaron Skloff, AIF, CFA, MBA. He is chief executive officer of Skloff Financial Group, a registered investment advisory firm based in Berkeley Heights, New Jersey.