Last year (2010) presented a unique opportunity for even high income earners to convert their traditional IRA or 401(k) account to a Roth IRA. I strongly considered doing that for our IRAs but after running some numbers, I decided against it. Many others pulled the trigger on the conversion. Subsequent economic conditions may have created reasons for some to “undo” their Roth IRA conversion.
First, a warning: The deadline for undoing a Roth IRA conversion is October 17.<
The question of whether you should undo the conversion comes down to money, of course. More specifically, it comes down to taxes. When you converted in 2010, you may have paid federal income taxes (and maybe state income taxes) on an IRA value which is now much lower. Paying taxes on money that has already been lost really hurts. Undoing the conversion will “undo” the tax obligation and put that money back in your wallet. You will probably have to file an amended return to get your refund.
FYI – If you change your mind again, you can also “undo” your “undo” as long as you wait 30 days.
Did any of you convert in 2010 and are now reconsidering?