SIE Exam Question 134: Answer and Explanation

Question: 134

An individual converts his $100,000 traditional IRA into a Roth IRA just before a major market decline causes the value to drop to $50,000. This investor should _________________ the Roth IRA back to a traditional IRA to avoid paying taxes on the extra $50,000.

• A. De-convert
• B. Roll over
• C. Recharacterize
• D. Transfer

Correct Answer: C

Explanation:

An individual converts his $100,000 traditional IRA into a Roth IRA just before a major market decline causes the value to drop to $50,000. This investor should recharacterize the Roth IRA back to a traditional IRA to avoid paying taxes on the extra $50,000.