Since their inception in 1998, taxpayers have had the ability to accumulate tax-free wealth for retirement in Roth IRAs. Eligible individuals can fund Roth IRAs through annual, after-tax contributions or taxable conversions from qualified retirement plans and traditional IRAs. What’s more, Roth IRA owners could undo or “recharacterize” their contributions and conversions for any reason within a set timeframe and not suffer any tax consequences. The deadline for completing a recharacterization is the individual’s tax filing due date, plus extensions. Individuals who file their return by the deadline have an automatic six month extension (October 15 of the year following the tax year).
While tax payers are still able to recharacterize contributions, time is running out for them to recharacterize conversions. When the Tax Cuts and Jobs Act was enacted it included a provision that eliminates recharacterizations of converted amounts effective for 2018 and later years. The IRS has clarified that individuals can still recharacterize amounts converted in 2017 as long as they do so by October 15, 2018. Amounts converted after December 31, 2017, can no longer be recharacterized.