Converting Traditional IRAs into Roth IRAs – an idea whose time has come?
“No Army can withstand the strength of an idea whose time has come…” I don’t think Victor Hugo was referring to IRA conversions when he said that, but there is nothing like a pretentious quote to get this blog moving. So, as Ross Perot would say “here’s the deal” –
Due to law changes, the year 2010 may be an ideal time to convert your regular IRA into a Roth IRA. Remember that a Roth IRA is an IRA turned on its head – you get no deduction for the Roth contribution, but the ultimate distributions from your Roth accounts are not taxable. Since the inception of Roths over a decade ago, clients have been considering converting existing IRAs to Roths, only to have their knowledgeable CPA tell them they either earned too much or that the immediate tax hit would be too great on the conversion. The new rules for 2010 change that equation. To be eligible for a Roth conversion this year, your 2009 adjusted gross income cannot exceed $100,000. In 2010, the $100,000 restriction will go away unless Congress changes the deal. Moreover, taxes on income recognized in 2010 from a Roth conversion are deferred until 2011 and 2012. So, 2010 may be an ideal time to convert, particularly if your account is still recovering from the market beatdown from last year.
There are other variables to consider in this analysis but give it some thought (and talk to your CPA).
Tags: Roth IRAs
