It's Not Too Late to Change Your Mind About Your IRA

When you make an IRA contribution, you must specify whether you are contributing to a traditional IRA or a Roth IRA. Sometimes events occur after the contribution has been made that make you wish you had made the opposite choice.

A contribution to a traditional IRA is tax-deductible. (If you are covered by a retirement plan at work, your contribution may or may not be deductible.) Your contribution and earnings aren't taxed until you withdraw them. Then they are taxed at your regular income tax rate.

Contributions to a Roth IRA are made in after-tax dollars. There is no immediate tax benefit because contributions aren't deductible. But your contributions and the earnings that accumulate on them are never again subject to tax if you follow the rules.

Perhaps you made a Roth contribution, but now want to reduce your 2000 tax bill instead. Or perhaps you made a traditional IRA contribution, but unexpected income now prevents you from taking a deduction on our 2000 return.

If you've changed your mind about what type of contribution is best for 2000, it's not too late to correct your mistake. The IRS calls this correction a "recharacterization". Fortunately, you can recharacterize your 2000 contribution until the due date of your 2000 tax return (including extensions).

Additionally, if you haven't yet contributed to your IRA for last year, you still have time to make that decision. You have until April 16, 2001, to contribute to your 2000 IRA.

The IRA rules are very complex. Your IRA decisions today have a long-term impact on your financial future. Call Kenneth D. Eichner, P.C. today for help in determining the strategies best suited to your situation.

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