IRA Conversions

If you converted your regular IRA to a Roth IRA in 2008, you have until October 15, 2009, to undo the change for tax purposes. There are two common reasons for why you would want to do this:

(1) If your Adjusted Gross Income was over $100,000, you were not eligible to make this conversion

(2) If you were eligible to make the conversion but the value of the Roth has fallen since making the conversion (a somewhat likely event), you can undo the conversion and eliminate the need to pay taxes on the conversion amount.

You can then wait 30 days (the minimum time) and then make another conversion to the Roth, this time with a lower value and hence a lower tax bill.

If you have already filed your 2008 tax return and did not make the switch back to a regular IRA and now want to make this switch, all is not lost. You can file an amended tax return (Form 1040X) and undo the tax treatment on the Roth IRA Conversion. You may want to handle the re-characterization first and then wait 30 days, make the conversion and then file the amended tax return, as there still could be a tax bill due on the conversion (just a smaller tax bill).

Please also remember that all taxpayers, regardless of income, can convert their regular IRAs to a Roth IRA beginning in 2010. This is one of the better tax plans for those who have been previously ineligible.