IRA Conversions to ROTH in 2010

Posted by Don W on December 14, 2010 under Estate Tax and Planning, Retirement tax planning, Tax Matters in the News

Back in 2006, President Bush signed a bill that liberalized rules for Roth IRA conversions.

Starting in 2010, taxpayers – including those with modified adjusted gross income of more than $100,000 – will be allowed to convert a traditional IRA to a Roth IRA – AND -recognize the income recognition (and the tax) on those 2010 conversions over the 2011 and 2012 tax years. This both delays, and spreads out the tax bite over the two years following the conversion year.

This 2-year tax rule applies to the tax year 2010 ONLY so if you wish to take advantage of it call your broker (or check your online broker’s site) for details. You have only two more weeks to act.

A thorough discussion of the how-to’s and should-you’s of Roth conversion in 2010 can be seen at: http://www.bankrate.com/finance/retirement/7-steps-to-a-2010-roth-ira-conversion-1.aspx. Upon reading this, you should be able to make an informed decision as to whether or not you should consider doing so.

My broker told me that the breakeven point for converting is about 8 1/2 years, so if this fits into your future retirement and longevity plans, consider doing so (but quickly!).