For those who feel they made a mistake by converting to a Roth IRA, the deadline to execute a “recharacterization” back to a traditional IRA is fast approaching. The deadline is set for Oct. 15, the same deadline for taxpayers who were granted an extension to file. Since the paperwork might take a few days and is requested from the account holder’s financial institution, it’s best to start sooner rather than later, experts say.
IRS rules dictate a conversion from a traditional IRA to a Roth can be made without penalty within a given year, although any appreciated gains within the account are included as income and taxed at that time.
Once the conversion is made, the account holder may experience an unforeseen change in circumstances that necessitates a change back to the traditional IRA; for instance, a spike in income that might put them in a higher tax bracket.
Additionally, after 30 days the IRS then allows for another conversion to a Roth IRA if the account holder so chooses.