Your Roth Account and the 2018 Rule Changes: Your Questions Answered

The rules regarding Roth accounts received an overhaul as part of the tax law changes enacted this year. Here’s what you’ll need to know to keep from getting caught by surprise!

Q: What are the new Roth conversion rules?

A: Starting in 2018 you are no longer allowed to ”unwind” or undo a conversion of dollars from an IRA to a Roth account once it’s completed. Previously you could convert dollars from your IRA to your Roth at any time during the calendar year. You also had until your tax-filing deadline, including extensions, to unwind that transaction. The old rule gave you the flexibility to convert dollars to a Roth from your IRA and see the impact on your taxes. You could then decide to keep the conversion in place or unwind some or all of it.

Q: What is the tax Impact?

A: You are allowed to convert dollars from your IRA to your Roth account at any time during the calendar year. As mentioned previously, once that conversion is completed you cannot undo it. It is permanent. You need to have a clear understanding of your tax situation and how the Roth conversion will impact the outcome before moving forward. Remember, any pre-tax money converted from an IRA to a Roth is considered taxable income and will be treated as such on your tax return.

Q: What about money you converted in 2017?

A: Any conversions made in 2017 fall under the previous Roth conversion rules. This means that for this year, at least, you have until your tax-filing extension deadline to unwind the 2017 transaction, if you want.

Q: How do the new rules affect my Roth contributions?

A: The rules remain the same for Roth contributions. You are still allowed to unwind a Roth contribution up until your tax-filing deadline, including extensions. If you make a Roth contribution in 2018 and later realize you didn’t qualify, you can still unwind that transaction. The income limitations to make direct Roth contributions in 2018 are modified adjusted gross income up to $189,000 for married filing jointly and $120,000, for filing single or head of household.