Is there any way to avoid paying taxes on IRA conversions?

Q. Dear Debbie,

I converted my Roth IRA to a Traditional IRA in 2015 and the value has now fallen. Is there any way for me to avoid paying taxes on the conversion?

A. Actually, many taxpayers are unaware that there are ways to avoid paying taxes on Roth IRAs converted in 2015 that have since fallen in value. If a traditional IRA was converted to a Roth IRA last year and has now fallen in value, you can re-characterize the Roth account back to a traditional IRA. You have until October 17, 2016, to make this request.

Moreover, if you have already filed your 2015 taxes and, as a result, have already paid taxes on the full conversion, the problem can still be corrected. All you have to do is file an amended return seeking a refund of the tax difference.

Thirty days after you have undone the conversion, you can then reconvert the reduced amount back to a Roth and pay less tax (assuming that those investments have decreased in value and you won’t be in a higher tax bracket this year).

If you would like to submit a planning question, you can do so by emailing [email protected].


Debbie Taylor, principal of Taylor Financial Group, a Franklin Lakes-based independent wealth management firm, provides the above information. The opinions voiced are solely those of Taylor and do not reflect the views of LPL Financial, nor should they be taken as investment, tax, or estate planning advice for any specific individual. Consult with your own tax, legal or investment professional on how the information may relate to your situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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