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IRS clarifies 2018 deadline for Roth IRA conversion do-overs

On Behalf of | Jan 24, 2018 | Income Taxes

The tax overhaul passed by Congress in December of 2017 changed little relating to long-term retirement matters. However, one change could have a major impact on Georgia residents hoping to retire soon. Specifically, the tax overhaul eliminates so-called do-overs for Roth IRA conversions. Under the prior law, an individual could convert a traditional IRA to a Roth IRA and then avoid a large tax bill by converting it back to a traditional IRA by October of the following year.

The change to Roth IRAs left has some questions in the minds of taxpayers who made the move to a Roth IRA in 2017. The confusion stemmed from whether a taxpayer had until the end of 2017 to recharacterize or if they would have until October 15, 2015, to do so.

Thankfully, the IRS was quick to respond. According to its website, a Roth IRA may be recharacterized until October 15, 2018, so long as the transition took place before January 1, 2018. This is good news for taxpayers who don’t want to rush to make a determination if a Roth conversion makes sense financially. Market changes can dramatically affect an individual’s tax burden. Therefore, having the additional time to reflect is valuable for a taxpayer.

The flexibility in making a decision about IRA recharacterization is especially good news for individuals already facing tax debt. Issues regarding taxes can be especially stressful given the changing legal landscape. An attorney experienced in tax law may be able to help individuals with tax debt. A lawyer could assist in negotiating potential settlements with the IRS, reclassifying debt as uncollectible or even litigating a tax dispute in federal court.