"The Pension Specialists" Blog

Fiscal Cliff and Roth IRA Conversion Planning

Based on the consulting calls we are getting, individuals are finally realizing that they may benefit by converting some or all of their traditional IRA to a Roth IRA. Set forth below are some planning tips.

1. A 2012 conversion must be completed by December 31, 2012. There is no such thing as a carryback conversion (i.e.) one made between January 1, 2013, and April 2013, for tax year 2012
2. A person is able to undo some or all of the conversion. A person has the right to recharacterize a 2012 conversion. In general, an individual has until April 15, 2013, plus an extension to recharacterize the 2012 conversion. If the person has timely filed his or her tax return for 2012, the deadline is October 15, 2013
3. Although a person may add his or her conversion contribution to an existing Roth IRA, if he is converting specific assets, then he may wish to establish a separate conversion Roth IRA plan agreement. If it is recharacterized, it will be much easier if it has been segregated
4. Consider charging a reasonable fee. There would be no fee for the 2012 conversion, but only for the recharacterization, if any. Doing the conversion by December 31, 2012, will give individuals important flexibility in planning their tax situation for 2012. They should be willing to pay a reasonable fee for this flexibility.