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Reconverting its shares back into its original debt claim including accrued interest.
Since recharacterizing a valid Roth conversion leaves clients with one shot at reconverting to a Roth IRA in 1999, CPAs must help the client decide when to reconvert to achieve the greatest tax savings.
Taxpayers who recharacterize a Roth IRA after December 31, 1999, must wait until the later of 30 days after the transaction or the beginning of the tax year following the year in which they converted their traditional IRA to a Roth IRA before reconverting to a new Roth IRA.
Since 30 days after the recharacterization is later than January 1, 2000 (the beginning of the tax year following the 1999 Roth conversion), Joan must wait until April 19, 2000 before reconverting to a Roth IRA.
Recharacterizing and reconverting a Roth IRA may result in tax savings for clients whose marginal tax rate declines in the year following the Roth conversion.
Thus, Daniel would save $1,004 ($9,300 - $8,296) by recharacterizing his 1999 conversion and reconverting (and paying the income tax) in 2000.
If after reconverting, but before the end of 1999, the Roth IRA declines in value, Jane can recharacterize and reconvert to avoid paying taxes on the post-(re)conversion value.
Married taxpayers who experience a decline in value in their Roth IRAs after recharacterizing a 1998 Roth conversion and reconverting in i999 can turn the 1998 conversion into a failed conversion by filing separately in 1998.
The exhibit above shows how Tim would benefit from recharacterizing his 1998 conversion and reconverting in 1999.