Let's assume you contribute a certain deductible amount to your IRA on Jan/2, and invest it there. You really want the money in your IRA Roth at the end of the year, but you try to pick the best approach after the fact:

  • if during the year your investments go down, you convert the investment at some point in time, and produce taxable income only for that lower value'. You get a negative income (the difference between deductible contribution and the now lower converted amount), which helps you save some taxes.
  • if your investments go up, you 'change your mind' in December, and recharacterize your original contribution to Roth. The gains therefore - retroactively - happened tax-free inside the IRA Roth - great!

I don't see a reason why this would be illegal or not workable?


1 Answer 1


It seems legal and workable. There was a variation of this strategy called the "Roth IRA horse race", but with the 2017 tax law changes that eliminated recharacterizing Roth IRA conversions, that is no longer possible. Your strategy still is, but it's limited by how many people are eligible to make deductible Traditional IRA contributions. And those that are probably don't have a particularly high marginal federal tax rate to make it extremely attractive. Also keep in mind that most years the market goes up, so most years you'll have to go through the trouble of doing the recharacterization.

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