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lfeller
Returning Member

How to Reverse IRA to Roth IRA conversion for 2022 tax return?

I have a traditional IRA account made up of employee 401K rollovers. No basis tracking since all rollovers were tax deductible. In Jan 2022 I did a conversion into a Roth IRA account with same trustee. The conversion was stock equities, which today have losses. Now, I am working my 2022 tax return, and found tax rate will be 32%, when I was thinking it would be 16%. How can I undo this using "recharacterization". One more issue, I requested a filing extension, but my local post office timestamped my letter to the IRS with April 19th, when I had taken it to the post office dropbox on April 18. Thus, IRS denied my extension request.

 

Thanks for your feedback..!!!

6 Replies

How to Reverse IRA to Roth IRA conversion for 2022 tax return?

see this link: 

 

https://turbotax.intuit.com/tax-tips/investments-and-taxes/reversing-a-roth-ira-conversion/L0yVOfwyZ

 

in the first paragraph: 

 

"Beginning with the 2018 tax year, undoing Roth conversions are no longer permitted." 

lfeller
Returning Member

How to Reverse IRA to Roth IRA conversion for 2022 tax return?

I need to do a "recharacterization", as this paragraph states?

You can reverse a conversion

If the investments in your new Roth IRA lose value after the conversion, you’ll have an adverse tax outcome, because the taxable distribution from the conversion will still be based on the value of the account on the conversion date. In other words, you’ll wind up owing taxes on money you no longer have.

  • Going back to our example, let’s say the value of the Roth IRA drops from the initial $50,000 to $35,000. You’ll still have a $45,000 taxable distribution from the conversion, even though the Roth account is now worth only $35,000.

Fortunately, you can avoid this unfavorable outcome by reversing the Roth account back to traditional IRA status. The IRS calls this process recharacterizing the account. Once the recharacterization is complete, you’re right back where you started, tax-wise—though your IRA is now worth $35,000 instead of $50,000. To summarize: the conversion is reversed, the $45,000 taxable distribution disappears,(along with the related tax liability), and the account is again a traditional IRA worth $35,000.

How to Reverse IRA to Roth IRA conversion for 2022 tax return?

@lfeller - please provide the source of that paragraph, including the date it was written.  It may have been true through 2017.. 

 

Again, see this Intuit link: 

 

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/difference-conversio....

 

  • Think of IRA recharacterizations as a set of special rules allowing you to change your mind about the type of your current year IRA contribution. As a result of the Tax Reform Act, beginning with 2018, recharacterization of a Roth conversion is not allowed.

How to Reverse IRA to Roth IRA conversion for 2022 tax return?

@lfeller - is this the source of the paragraph you posted? 

 

https://turbotax.intuit.com/tax-tips/investments-and-taxes/reversing-a-roth-ira-conversion/L0yVOfwyZ

if so, note that the sub-heading states " Updated for Tax Year 2017"

lfeller
Returning Member

How to Reverse IRA to Roth IRA conversion for 2022 tax return?

Why does my desktop TurboTax for 2022 describe recharacterization and TD AmeriTrade has a form I can use to do it..?

 

How to Reverse IRA to Roth IRA conversion for 2022 tax return?

recharacterizing "contributions" is very different than recharacterizing "conversions". 

 

You can recharacterize 'contribution dollars' , but not 'conversion dollars' 

 

putting after tax money into a Roth IRA is a 'contribution"; rolling dollars to a Roth IRA that were already contributed to an TRAD IRA is a 'conversion'. 

 

you described a "conversion' is what you are trying to accomplish - not a contribution.

 

this is a good article. Note the consistent use of the word 'contribution' 

 

https://investor.vanguard.com/investor-resources-education/iras/ira-recharacterization

 

as you read, review the very last statement by Vanguard: 

 

"Remember, a Roth conversion completed after December 31, 2017, can no longer be recharacterized back to a traditional IRA later.""

 

 

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