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As the old saying goes, even the best laid plans can go wrong. So, what if you’ve done all of your research, assessed your financial future and gone ahead with a Roth conversion, only to see your assumptions fall apart?

Don’t worry. If this happens soon enough, you get an "undo" and recharacterize your conversion, turning your Roth back into a traditional IRA, or TIRA.

The nuts and bolts are simple. Call the bank, brokerage or mutual fund company that has your Roth and get them to walk you through the process. Generally, you have until Oct. 15 of the year following the one in which you did the conversion. If you were to convert now, you could undo the move as late as Oct. 15, 2011.

You don’t need to justify your move or present a case, but recharacterizations are typically done for one of three reasons.

Your Roth lost value. If you convert a $100,000 TIRA, you could be hit with a $25,000 income-tax bill, assuming a 25% tax bracket.

But what if a stock-market correction dragged your new Roth down to $80,000? Had the investment been worth only $80,000 when you did the conversion, the tax bill would have been $20,000, not $25,000. To make things even worse, converting $100,000 rather than $80,000 might have nudged you into a higher tax bracket.

By recharacterizing the conversion before the deadline, you could escape the $25,000 tax. Later, you could again convert the TIRA to a Roth. If the TIRA was still worth $80,000, the conversion tax would be $20,000, and the process would have saved you $5,000. To do the new conversion, you must wait until 30 days after the recharacterization, or until the following year, whichever comes later.

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Tax assumptions change. Conversions are most likely to make sense if you expect to be in a higher tax bracket in retirement than when you convert, since you would pay the conversion tax at today’s low rate to avoid a higher rate later.

But this always entails some guesswork. Imagine, for example, that a big bonus, raise or investment gain unexpectedly spiked this year, putting you into a higher tax bracket. Or suppose you’d planned on a big inheritance to boost your income in retirement, putting you in a higher tax bracket later in life, but now find you’ve been written out of the will?

If these events occur by the Oct. 15 deadline, a recharacterization might be a good option.

Money is tight. For a Roth conversion to make sense, you must have some other source for funds to pay the conversion tax. If investment losses, unexpected expenses or the need for a bigger rainy day fund leaves you short of cash, a recharacterization may be the best solution.

Then, when conditions improve, you can look again at whether a Roth conversion makes sense.

Keep in mind a one-time deal for investors who convert this year: the right to divide the tax bill between 2011 and 2012 if you prefer not to pay it in 2010. Not only does that make it easier to come up with the tax payment, it could prevent the conversion from pushing you into a higher tax bracket.

But that’s no reason to do a conversion that doesn’t make sense otherwise. After all, you’re not required to convert all your TIRAs into Roths, or even all of a single TIRA. If conversions make sense, you can pace them over two or more years to keep each year’s tax bill manageable.

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