Dirk Olds, CAP®, Financial Advisor


People invest their time into activities they love. Whether you take long bike rides with your kids, read fiction, train for marathons, or watch baseball (America’s pastime), hobbies are often a reflection of our interests and our talents.


Timing is important in all of these pursuits: the difference in arrival time between a fastball and a changeup in the major league is only thousandths of a second; out of hours of running, marathon winners are often determined by a single step’s separation.


Timing is now more important than ever when it comes to Roth conversions. Te Tax Cuts and Jobs Act of 2017 (TCJA) amended the IRS code of 1986. One of the effects was the elimination of Roth re-characterizations—converting a Roth IRA back to a


available to consider a re-characterization, and allowing growth to happen inside the tax-free account, because the general trend for markets is to go up more than they go down. Now, however, the inability to undo Roth conversions (including partial re-characterizations of an excess conversion) means that conversions


Timing is now more important than ever when it comes to Roth conversions.


traditional IRA—and, subsequently, saving any tax due on the conversion.


Originally, a Roth re-characterization was a way to effectively undo a Roth conversion for those who later discovered they were over the conversion income limits (which were in place until repealed in 2010) or who simply converted more than they wanted to pay on tax today. Tis process was recently perceived as an abuse of tax law or a “loophole” that Congress felt the need to close. Although Roth re-characterizations have been eliminated, the fact remains that Roth conversions themselves can still be effective tax planning tools for helping you reduce your long-term tax liabilities. Keep in mind, though, that the elimination of the Roth re-characterization changes the optimal timing and execution of Roth conversions going forward.


Since re-characterization of conversions is no longer an option, getting a conversion right the first time is more important than ever. Te most common reasons for wanting to complete a re-characterization (e.g., market decline, higher than expected income, or simply changing your mind) could result in considerable consequence if a conversion isn’t done right the first time.


Likely the biggest change is the timing of conversions. Previously, completing Roth conversions as early as possible in the year was considered ideal – as a means to both maximizing the time


will often be more effective when implemented toward the end of the year when income (and deductions) can be projected more accurately.


All of that said, remember that Roth conversion strategies are still very useful even after the TCJA. Despite the elimination of the re-characterization of Roth conversions, the attractiveness of recently reduced tax rates arguably makes Roth conversions that much more appealing. You simply must get the timing right.


A talent for getting the timing right is essential whether you are determining when and how much to convert to save taxes into the future, turning your steak on the grill, or snapping the shutter to capture the perfect picture. Ambassador Advisors can help answer your questions and assist you in timing your financial decisions to be wise with your investment planning.


With a Roth IRA, contribution are made after tax. Distributions made from the account are tax-free.


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