The Value and Use of the IRA Recharacterization Option

Stowe, David L.; Fodor, Andy; Stowe, John D.

doi:10.2469/faj.v69.n5.3

Cited by 3 publications

(3 citation statements)

References 10 publications

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“…We confirm that this is indeed the case, but that for an account with substantial unrealized capital gains, this benefit diminishes. Stowe et al (2013) applied a real options approach to valuing the recharacterizations of a Roth conversion. Unfortunately, recharacterizations were removed as part of the 2017 Tax Cut and Jobs Act TCJA.…”

Section: Drawdown Phasementioning

confidence: 99%

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Optimal decisions under price dynamics for Roth conversions

DiLellio,

Goldfeder,

McQuarrie

2023

Fin Plan Rev

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Retirees are faced with a variety of choices during their working and retirement years on how to best support their retirement lifestyle and estate planning goals. One of these choices is the option to convert a portion of their pretax savings from a tax‐deferred account (TDA) into a tax‐exempt Roth account. In this article, we quantify the Roth conversion payoff and when/how it depends on investment returns. We show that, while the use of taxable account assets may produce a larger payoff than early withdrawals from the Roth IRA, large unrealized taxable account gains and estate plans may change this calculus. Our work provides a recommendation on how current dividends or cash versus appreciated assets should be used to optimize Roth conversion payoffs, and informs FinTech companies and robo‐advisors on how to best support this important option for millions of current and future retirees.

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Section: Drawdown Phasementioning

confidence: 99%

“…Stowe et al (2013) applied a real options approach to valuing the recharacterizations of a Roth conversion. Unfortunately, recharacterizations were removed as part of the 2017 Tax Cut and Jobs Act TCJA.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal decisions under price dynamics for Roth conversions

DiLellio,

Goldfeder,

McQuarrie

2023

Fin Plan Rev

View full text Add to dashboard Cite

show abstract

“…So, the recharacterization option would expire in 21.5 months. For more on the value of this recharacterization option, see Stowe, Fodor, and Stowe (2013).…”

Section: Details Of Strategymentioning

confidence: 99%