NEW BERLIN, Ill. ( MainStreet) -- If you have an IRA you probably know about the concept of a Roth IRA conversion -- in which you take distribution of a portion of your IRA and transfer that money directly into your a Roth IRA, paying tax as you go. Then the Roth IRA can continue to grow tax free (as Roth IRAs do) and you'll never owe tax on your qualified distributions.In addition, if the investments you've made in the Roth IRA have lost money, before Oct. 15 of the following year you have the opportunity to recharacterize your Roth conversion. If you didn't recharacterize, you'd be paying tax on a conversion amount much lower now if there was a downturn in the investments, so your average tax rate is much higher than you'd hoped. By recharacterizing, you can undo the conversion or a part of it.
|You can use the Roth IRA recharacterization option to your advantage.|