Roth IRAs have long been one of our favorite types of investment accounts. Under the right circumstances, they can help investors lock in low income tax rates now, then avoid having to pay any taxes on future earnings.
With the change in tax law, some people will be looking at much lower tax rates in 2018. There is a possibility that tax rates may increase in the future to deal with challenges in Social Security and Medicare. With the current situation of low rates today and potentially higher rates in the future, some people may be better off putting more money in their Roth IRAs now – it depends on the specifics of each family’s situation.
In the past, the IRS used to allow recharacterizations. In other words, if you changed your mind after converting a traditional IRA into a Roth, you could undo it up until October 15th of the following year. That option to recharacterize has now disappeared with the 2018 Tax Law. That makes it all the more important to be sure you want to convert to a Roth before you start the process.