Good News: IRS Says 2017 IRA Conversions Can Be Reversed

The IRS recently announced that the prohibition on recharacterizations of IRA conversions doesn’t apply to conversions made in 2017.

Since the first days of Roth IRAs, taxpayers have been able to convert traditional IRAs into Roth IRAs by including the converted amount in gross income and paying the taxes. Taxpayers also have been able to reverse the conversion, known as a recharacterization, any time through Oct. 15 of the year after the conversion.

The Tax Cuts and Jobs Act prohibits recharacterizations of converted IRAs after 2017. The wording was a bit fuzzy, but many people read it to prohibit recharacterizations in 2018 of 2017 IRAs conversions.

The IRS recently announced its interpretation of the new law, and it is favorable to those who converted IRAs in 2017. The IRS stated the prohibition will apply only to conversions that are done in 2018 or later years. Anyone who converted a traditional IRA to a Roth IRA in 2017 has the right to recharacterize the IRA using the old rules