After a Roth IRA conversion, you have until October 15 of the following year to "recharacterize" the account to a traditional IRA. With this tactic, you can reverse all or part of a conversion to control the amount of tax you pay.
Suppose that Arthur Jones converts a $100,000 traditional IRA to a Roth IRA in 2010. In October 2011, his Roth IRA is still worth $100,000. Arthur is in a 28 percent tax bracket so he will owe $28,000 in tax.
However, Arthur does not want to pay that much tax. He can recharacterize the entire conversion and owe no tax. Alternatively, Arthur can do a partial recharacterization by the October 17 deadline. (October 15 falls on a Saturday next year so the normal October 15 deadline will be October 17 in 2011.)
If Arthur only wishes to pay, say, $14,000 in tax, he can recharacterize $50,000 of his $100,000 conversion. That will leave him with a $50,000 Roth IRA conversion. At a 28 percent rate, he would owe $14,000 in tax.
The October 15, 2010, deadline applies to Roth IRA conversions in 2009. If you would like to get a full or partial refund of tax you paid on a Roth IRA conversion from last year, contact your IRA custodian by this October 15.
