IRA to Roth IRA Conversion Opportunity
Posted 11-22-2009 | Download Article
The wait is over. Beginning in 2010, all taxpayers will be able to convert a traditional individual retirement account (IRA) to a Roth IRA. The $100,000 Adjusted Gross Income (AGI) limit and filing status restrictions will be eliminated opening the doors for many more individuals to take advantage of Roth IRA benefits.
Although the opportunity is inviting, there are many tax and financial considerations to evaluate before moving forward.
- Converting a traditional IRA to a Roth IRA is a taxable event. The first step is to make sure you can afford the tax on the converted amounts. However, in 2010 only, Congress will give individuals the choice to recognize the conversion income in 2010 or to average the income over 2011 and 2012. Tax rates for each individual year will apply.
- Consider if you will be in a higher or lower tax bracket in the future. Roth IRAs are advantageous to those in higher tax brackets since distributions during retirement are not taxed and there are no required minimum distributions.
- If you don’t have a traditional IRA, or you have limited amounts in your IRA, consider funding one now to convert next year, or funding an after tax non-deductible IRA. Since the AGI limits and filing status restrictions are eliminated, individuals with prior limitations can continue to fund traditional IRAs every year with the plan for conversion thereafter.
- Existing traditional IRA’s must be aggregated with any after tax IRA’s when converting.
The IRA to Roth IRA conversion opportunity provides many tax planning considerations. Please contact Sue Weiskopf-Larson, MBT, CPA, sweiskopf@hlbtr.com or Gloria McDonnell, CPA, gmcdonnell@hlbtr.com to evaluate your situation and determine if a conversion is right for you.
Employer Considerations for Roth IRA Conversion
Employers may have the opportunity to help their employees access additional funds for a Roth IRA conversion through their 401(k) plan. Company retirement plans can be amended to include provisions allowing employees to access funds for rollover opportunities from their 401(k). There are many pros and cons to evaluate before amending your company’s retirement plan. If you are interested in discussing options, please contact Christine Bentson, CEBS, CPA, RPA cbentson@hlbtr.com.