Why No More Roth Do-Overs Could Prove Costly

As Congress rewrote the nation’s tax laws last year, a few ideas to revamp the rules of retirement investing were floated—and quickly shot down. In the end, the legislation left 401(k)s and individual retirement accounts largely untouched. But one small provision that got into the final bill could make a big difference to retirement savers: If you convert a traditional IRA to a Roth IRA, a move that triggers taxes now but ensures tax-free income later, you will no longer have the option to change your mind. And while that doesn’t erase the appeal of switching to a Roth, it does make planning more fraught.

The Roth conversion floodgates opened in 2010 when the move became available to all savers, no matter their income. The appeal is simple: Tax-deferred retirement accounts such as 401(k)s and traditional IRAs can be tax time bombs. When you tap the funds in retirement, you owe income taxes on decades of gains. With Roths, by contrast, there’s no tax break now, but withdrawals are tax-free.