September 26, 2011 by tfroberts

If you made a conversion or partial conversion to a Roth IRA in 2010 and the value of your investments has decreased you may want to consider "undoing" the conversion. If so, you need to act fast as the deadline is October 17, 2011.

Why would you want to "undo" the conversion? When you converted the Traditional or Rollover IRA to a Roth IRA, you agreed to pay taxes on the gains. If the value has decreased, you are still responsible for paying based on the gain at the time of conversion. If you make this change, you are limited to when you can make another conversion.

In 2010, there was a one time opportunity to pay the taxes on the conversion over 2011 and 2012 tax years. If you undo the conversion, you will loose this opportunity. Future conversions will require paying all the tax due in one tax year. Of course, you can always make partial conversions to manage your tax bill.