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Which is better, Roth or regular? 

If you are under 50, I would favor the Roth, because you have sufficient years for the account to build interest, which can then be withdrawn tax-free.  If you are over 50, you should do the math to compare current vs future taxes. And, in any year the regular IRA contribution would be nondeductible due to income limits, or if the deduction is wasted due to net losses, the Roth is clearly a better choice.

So you choose Roth or regular, and you commit your money based on that choice.

Wait. Suppose, when you are preparing your tax return, you decide you made the wrong choice.  

Current law (2017 and prior) lets you change your mind, and recharacterize that contribution to a regular IRA as a contribution to a Roth, and vice versa.  Even better, you have until the due date of your return (Oct 15 if extended) to make that recharacterization happen. That means you have about 10 months after year end to retroactively increase or decrease your taxable income depending on what works better for you.  Neat, huh? 

Do-overs are limited under New Law

The new law not preclude an individual from making a contribution to a traditional IRA and converting the traditional IRA to a Roth IRA. Rather, the new law precludes the individual from later unwinding the conversion through a recharacterization.

Thus, recharacterization cannot be used to unwind a Roth conversion. However, recharacterization is still permitted with respect to other contributions.

For example, an individual may make a contribution for a year to a Roth IRA and, before the due date for the individual’s income tax return for that year, recharacterize it as a contribution to a traditional IRA.

 


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