Recharacterization of Roth conversion
Last December, my accountant grossly miscalculated my tax liability estimate, which led me to believe that a Roth conversion could be made with a manageable tax impact. Later, when she prepared my tax returns in April, I discovered that my tax liability was actually much higher, and that the tax impact of the Roth conversion was too great to make it worthwhile. Can the Roth conversion can be reversed through timely recharacterization within my Solo 401k plan?
Answer:
No. You cannot undo the Roth conversion.
The "Participant's Election" section of the In-plan Roth Conversion Amendment states that the in-plan Roth conversion is irreversible and cannot be undone or recharacterized in any manner. To not follow the terms of the plan (as stated in the amendment) would be an operational failure of the plan.
The Internal Revenue Bulletin: 2010-51 published December 20, 2010 (also listed as Notice 2010-84) provides Guidance on In-Plan Roth Rollovers:
https://www.irs.gov/irb/2010-51_IRB/ar11.html
In the Question/Answer section, it states the following:
Q-6. If a participant elects an in-plan Roth rollover, can he or she later unwind the in-plan Roth rollover, as can be done with rollovers to Roth IRAs?
A-6. No. The recharacterization rule in § 408A(d)(6) applies only to contributions to IRAs.
There is no way to reverse the Roth conversion. You will have to declare that as your taxable income and pay the taxes. Please consult with your CPA for details.