The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Lan Mandragoran on December 20, 2017, 02:36:57 PM
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This is probably a stupid question.... so sorry ahead of time ;P.
I saw https://www.cnbc.com/2017/12/19/roth-ira-conversions-cant-be-undone-under-gop-tax-reform.html this article. I can't tell are they saying you can't mid year change your change your contribution, or is this much worse and saying you can't do a roth IRA conversion. If I'm not mistaken the latter would hurt the plans of may FIRE peeps, who plan on doing going the roth ladder route.
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No, it only means that you can't un-do any conversions that you do. So you'd better be sure about it before you convert.
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What Monkey Uncle said.
You can't recharacterize(undo) conversions. You can still undo contributions. You can still change your rate of contribution to your Roth 401k or automatic contributions to a Roth IRA. You can still use a backdoor Roth and a Roth conversion ladder.
You just can't recharacterize conversions now.
Why? People were using the rules to pass some of the investment risk onto the government. They would do multiple conversions into multiple Roth IRAs. Let's say one for domestic large cap, one for domestic small cap, one for developed markets, one for emerging markets... you get the idea. Then they would see if the money in each account grew or went down. If an grew they would leave the conversion alone. If it went down they would recharacterize the conversion. Why pay taxes on a $50,000 conversion if the money is only worth $40,000 now? Instead, recharacterize the $50,000, then reconvert the $40,000. Keep the money you would have paid in taxes on the extra $10,000.