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Time to Recharacterize?

Sometime last year you converted some funds from your pretax IRA account to a Roth. Now, the market is down (The S&P index down about 5% year to date) and you are thinking that paying the tax on the higher value when you first converted isn’t the greatest idea.

Or, you make have realized when you filed your return that the extra taxable income put you into a higher tax bracket. Why pay 25% on that conversion when your regular rate is running at just 15%? In hindsight, it’s easy to look at your return’s ‘taxable income’ line and see where you fall. You can recharacterize just enough to keep you in your original bracket. Don’t forget, you had the option to spread the income over two years, 2011 and 2012 or to take it as income in 2010. If so, you need to look closely at how your 2011 income is doing along with how your investments in the Roth have fared.

It’s nearing the deadline, 6 months after that April 15th Tax Day, or October 17th as October 15th is a Saturday. The clock is ticking!

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