An Early Roth IRA Conversion Tip
It’s best to take action early in the tax year if you want to roll funds into a Roth IRA. That’s because an early move into a Roth typically gives you the option to re-convert your funds through October 15th of the following tax year. The IRS calls this process recharacterization.
Example: Sam converts $50,000 from a Traditional IRA to a Roth in January. By October, the Roth is worth only $40,000 because Sam’s investments lost value. If Sam does nothing he will still pay taxes on $50,000 converted from his Traditional IRA in January. Instead Sam can recharacterize some or all of the funds back into a Traditional IRA and pay no taxes on the conversion.
Here are some things to consider with an early rollover to a Roth IRA.
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Each person’s situation is unique. Carefully review your options prior to taking action.