The 2017 Tax Cuts and Jobs Act (TCJA) changed the provision for Roth IRA Conversion Re-characterizations.
Upon retirement, you may have a couple of years when you are in a much lower tax bracket than you were while working and contributing to a 401k or other tax-deferred savings vehicle. As a way to shift income to these lower tax years, you may consider converting a portion of your traditional IRA to a ROTH IRA.
When making a ROTH conversion, monies are withdrawn from your Traditional IRA and deposited into your ROTH IRA. Tax is paid on the amount distributed from the Traditional IRA in the year of conversion. Future distributions of income and growth in the ROTH IRA will be tax free as long as you meet the holding requirements.
Previously, there was a special rule that allowed you to undo or recharacterize the contribution back to a traditional IRA. One of the main reasons to choose to recharacterize a ROTH IRA into a Traditional IRA is because the investments have suffered losses since the conversion. Congress eliminated this provision effective January 1, 2018. Going forward, Roth conversions are now subject to greater market timing risk as they cannot be undone. They can still make sense, however, for taxpayers who take a longer view. It is essential to consider carefully whether a Roth IRA conversion is the best strategy for you.