LawFlash

UPDATE: US Tax Reform Impacts Roth IRA Conversions

January 29, 2018

The Internal Revenue Service confirms in writing that recharacterizing 2017 Roth IRA conversions will be permitted until October 15, 2018.

As discussed in our prior client alert, the December 22 tax reform legislation, HR 1, amended the Internal Revenue Code to eliminate a provision permitting individual retirement account (IRA) owners to recharacterize Roth IRA conversions made during a tax year if the recharacterization was done prior to the individual’s tax filing deadline (with extensions). This change is effective for taxable years beginning after December 31, 2017.

But, the legislation left unclear whether an individual could recharacterize a Roth IRA conversion contribution made in 2017. On January 18, the Internal Revenue Service (IRS) issued informal guidance in the form of FAQs on its website confirming that Roth IRA conversion contributions made in 2017 are still permitted to be recharacterized in 2018 up to the October 15, 2018 deadline. (Read the FAQs here.) The FAQs further indicate that additional guidance will be issued in IRS Publication 590-A, an updated version of which should be released soon for 2017 tax returns. The IRS also provided a link to the updated FAQs in its January 29, 2018 issue of Employee Plans News.

This is good news for IRA owners, trustees, and custodians, and the IRS is to be applauded for addressing the issue so quickly. Although FAQs published on the IRS website (and the yet-to-be updated Publication 590) are not considered formal guidance that may conclusively be relied upon by a taxpayer, they provide helpful insights into IRS policies and interpretations of tax law. We encourage the IRS to issue formal guidance (such as an IRS Notice or Announcement) on this issue.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Philadelphia
Sariyah Buchanan
Vivian McCardell
Bob Abramowitz
Steven Spencer
Brian Dougherty

Washington, DC
Michael Richman
Lindsay Jackson
Daniel Kleinman
Althea Day
Greg Needles

New York
Craig Bitman

Pittsburgh
John Ferreira
Randy Tracht

Boston
Lisa Barton

Chicago
Marla Kreindler
Julie Stapel