Do-over strategy for IRA types

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There’s a little-known strategy called recharacterizing that allows you to take advantage of the tax differences between Roth and traditional individual retirement accounts to save on taxes.

Of course, you can convert your traditional IRA, for which contributions are tax-deductible but withdrawals in retirement are taxed, into a Roth IRA, which doesn’t allow for tax deductions for contributions but which allows your earnings to grow tax-free.

But Jim Lange, who is the author of “Roth Revolution: Pay Taxes Once and Never Again,” tells us that you can convert one type of IRA to the other once a calendar year.

If the performance of your investments takes a large hit, you can undo your conversion without penalty by recharacterizing your Roth IRA back into a traditional IRA (and taking a tax deduction if you made a contribution the previous year).