Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, July 29, 2014

Roth IRA Conversions

Roth ira

When the income limits on Roth IRAs were lifted in 2010, they grew significantly in popularity.  As a result, the ability to recharacterize a conversion is being used proactively.  To take advantage, advisors help clients convert traditional IRAs into Roth IRAs, then watch the investment.  If it is up, the conversion stays, and if it is down, the account becomes recharacterized, available for a future conversion. 

When an entire traditional IRA is converted into a Roth and subsequently recharacterized, the entire Roth IRA is transferred back to a traditional IRA, since it will already include any gains or losses that occurred during the temporary conversion period.  When the original conversion becomes only a portion of the account, Treasury regulations stipulate that the recharacterizaiton must include a pro rata share of the gains or losses of the entire account. 

See Michael Kitces, Roth IRA Conversions: How to Profit from Hindsight, Financial Planning, July 28, 2014. 


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Thanks so much for the mention of my article!

For what it's worth, the original source was actually from my blog at http://www.kitces.com/blog/splitting-a-roth-conversion-into-multiple-accounts-to-isolate-investments-for-strategic-recharacterization/ - the version in Financial Planning magazine was part of my syndication agreement with them.

I hope it provides some helpful food for thought for your readers!

With warm regards,
- Michael

Posted by: Michael Kitces | Jul 30, 2014 11:50:56 AM

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