I made a huge mistake. I had a large capital loss in 2022 and I mistakenly thought an IRA to Roth conversion would be treated as a capital gain, so I did the Roth conversion in December of 2022 since I thought it would offset by my capital loss. I now realize that the conversion is income, so I have a huge tax bill with a large capital loss carryover.
I read that the reversal of an IRA to Roth conversion was not allowed after 2018 (why?). Is there any way around this?
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Conversions have a 5 year clock, if you withdraw a conversion amount less than 5 tax years after it was made, and you are under age 59-1/2, you will pay a 10% penalty. If you have other funds in the Roth IRA (regular contributions) you could withdraw them to make a tax-deductible contribution to your regular IRA, unless you are already maxed out on contributions or you are limited by your income.
I think you're stuck. The good thing you pay the tax now but you never have to pay it again. You could make a partial withdrawal from the Roth to cover the taxes if you don't have other funds, that will cost you 10% but that might be less than interest you would pay if you had to borrow to pay the taxes.
It is true you cannot recharacterize a ROTH IRA conversion in 2022, I'm not sure why the law was changed. You could take a tax-free distribution from the ROTH however and then use the funds to make a deductibe contribution to a traditional IRA, subject to contribution limits based on the type and amount of your income. The only tax you may have to pay on the ROTH distribution would be a penalty on earnings in the fund if it was an early withdrawal, but you may not have much of that if the funds are from the conversion you did in 2022.
Here is a link to learn more about the amount you can contribute to an IRA in 2022: IRA contribution limits 2022
Conversions have a 5 year clock, if you withdraw a conversion amount less than 5 tax years after it was made, and you are under age 59-1/2, you will pay a 10% penalty. If you have other funds in the Roth IRA (regular contributions) you could withdraw them to make a tax-deductible contribution to your regular IRA, unless you are already maxed out on contributions or you are limited by your income.
I think you're stuck. The good thing you pay the tax now but you never have to pay it again. You could make a partial withdrawal from the Roth to cover the taxes if you don't have other funds, that will cost you 10% but that might be less than interest you would pay if you had to borrow to pay the taxes.
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