The Tax Cuts and Jobs Act and your Self-Directed IRA

The Tax Cuts and Jobs Act and your Self-Directed IRA

The Tax Cuts and Jobs Act and your Self-Directed IRA

There was quite a bit of both commotion and breath holding leading up to the actual passage of the tax reform bill. While you may personally be upset, be cheering, or even be a bit bewildered, retirement plans were for the most part left untouched.

Only a handful of changes were made to retirement planning laws which could apply to your self-directed IRA. The main change, which could affect your yearly tax planning, was to Roth recharacterizations. In 2017 you had the ability to convert funds from a tax deferred Traditional IRA and later, if you changed your mind, you could do a recharacterization and basically “take back” that decision.

You may choose to recharacterize a Roth conversion for a several reasons: the conversion is a failed or ineligible conversion, the amount of taxes which will be owed on the converted amount will prove to be too much of a hardship, the value of the assets actually declined in value since conversion, or you simply changed your mind and no longer choose to keep the assets in a Roth IRA.

However, beginning Jan 1, 2018, The Tax Cuts and Jobs Act has eliminated the option to recharacterize. According to the IRS website:
A Roth IRA conversion made in 2017 may be recharacterized as a contribution to a traditional IRA if the recharacterization is made by October 15, 2018. A Roth IRA conversion made on or after January 1, 2018, cannot be recharacterized. For details, see “Recharacterizations” in Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

You should always remember to consult a tax professional about your specific situation.


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