It’s well known that the current tax reform legislation making its way through Congress can, and most likely will, impact your retirement accounts and plans. One target is regarding recharacterizations of Roth IRA and traditional IRAs, which both the House and Senate bills would do away with. Recharacterizations are important because it is one of the few tools available to correct a conversion. Under the current system, you have until October 15 of the year following the year in which you made the conversion to recharacterize it. This current system gives people time to reconsider and think about conversions and take steps to fix it. However, if that is done away with, people may be much more cautious with conversions. Furthermore, if these proposed bills are signed into law before the end of the year, the elimination of the ability to recharacterize a conversion most likely will happen sooner rather than later. Therefore, if you have been thinking about recharacterizing a conversion you made in 2017, you may want to do so before the end of the year or in the early part of 2018.
This past week, House Republicans announced a plan to reform the tax system. That proposal features some major changes to the current tax system that could potentially have huge impacts on the middle class as well as wealthy Americans and corporations. There has also been talk about changing retirement plan limits as part of a tax system overhaul, but such changes do not appear to be part of the proposal introduced this week. What does this mean for you? Well, at this point, it’s hard to tell as the proposal is still being digested by members of Congress as well as special-interest associations. There is also a good chance that there could be many changes made to this proposal before a final draft is published. While this is only a proposal at this point, it is important that you understand the major changes that it could bring about and how it could not only affect your taxes, but also potentially your retirement savings.