As of January 1, 2010, the $100,000 AGI limit on Roth conversions is eliminated, thereby making anyone who holds a traditional IRA account eligible to convert part or all of their traditional IRA into a Roth IRA.

Roth IRAs – What are the benefits?

• Qualified distributions are tax free.
• Earnings grow tax free.
• No minimum Required Distribution during your lifetime.
• Your beneficiaries inherit the account without paying any income tax on distributions, though they must start taking distributions within certain time limits.
• Taxes paid on conversion reduce overall estate subject to potential taxes at death.

Who should consider a Roth conversion?

• You expect your tax rate to be the same or higher when you retire.
• You can afford to pay taxes incurred on the conversion from funds other than those held in the converted account.
• You have tax carryovers that will offset the income incurred by the conversion.  For example, Net Operating Losses, Charitable Contribution carryovers or Business Credit carryovers.

How the Roth conversion works:

• The amount converted can either be reported as income in 2010 or split into the following two years – 2011 & 2012.
• The assets must remain in the Roth IRA for 5 years after the conversion, and you must be over 59.5 to qualify for tax free distributions.

Each situaion is unique; please call us to discuss whether a Roth conversion is right for you.

 

Any tax advice in this communication is not intended to be a “covered opinion” as described under IRS Circular 230.  It is therefore not intended to be used, and cannot be used, by a client or any other person or entity for the purpose of avoiding penalties that may be imposed on any taxpayer.

This entry was posted on Friday, February 5th, 2010 at 4:32 pm and is filed under Tax. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.