Roth Conversions
Starting in 2010, individuals with any amount of modified Adjusted Gross
Income are free to switch a traditional IRA to a Roth IRA. Conversions
are fully taxable at your regular tax rate. For conversions in 2010,
taxpayers can spread the tax due over two years. Half the tax will be
due in 2011, and the remaining half will be payable in 2012. Removing
the limit on conversions effectively eliminates the income limit on
contributions to Roth IRAs. A taxpayer with income too high to use a
Roth will be able to contribute to a traditional IRA (which does not
have income limits for contributions) and immediately convert to a Roth.
Generally, conventional wisdom dictates that Roth conversions only take place if you have money available outside of the Roth account to use to pay the taxes. Also, it should be recognized that the income you realize from the conversion will be added to your normal income for the year and therefore, the converted amounts may be taxed at a significantly higher tax rate. It may make sense to make a partial conversion and stay within a given tax bracket.
We can help you consider the alternatives, please give us a call and we'll set up a time to meet and discuss this strategy.
