A very exciting thing is getting ready to occur! Are you ready? You know how excited I am about the Roth IRA. Well, something exciting is getting ready to occur within the Roth IRA realm that many do not know about. What is it? It’s the 2010 Roth IRA conversion event.
If this article was helpful, you may also want to check out these posts as well: Roth IRA- Time To Convert ,7 Things You Need to Know About the Roth IRA Conversion for 2010, Roth IRA Conversion Tax Rules.
The 2010 Roth IRA Conversion Is Coming
Currently, if you have money in a traditional IRA and you want to convert it to a Roth IRA, you are unable to do so if your Adjusted Gross Income is greater than $100,000 a year. This is especially frustrating if your income is greater than the Roth IRA Phaseout Limits that leaves you without being able to take advantage of one of the greatest retirement planning tools. Don’t be depressed yet. There is still hope. Drum roll please……Introducing the 2010 Roth IRA Conversion Event. What happens in 2010 is that these income limits will become extinct, so that anyone, no matter your income limit, can convert from traditional IRAs to Roth IRAs.
Tax Ramifications
The one thing to be knowledgeable about is that we will have an income tax consequence due to this action, but the IRS has implemented a favorable tax treatment upon doing this. The favorable tax treatment works like this:
- Usually if you convert from a traditional to a Roth, you are then burdened with the tax owed that current year, based off your ordinary income tax rate.
- But the IRS has graciously allowed you to defer your tax owed in 2010, to where you only have to pay half of the tax burden on your 2011 return, and the remaining half on your 2012 tax return.
- It’s a nice little incentive if you are considering converting your traditional IRA or old 401k’s to a Roth IRA because of this favorable tax treatment.
This strategy is not right for everyone. As usual, you want to talk to your tax professional or financial planner before implementing this strategy.
Securities offered through LPL Financial member FINRA/SIPC
{ 2 comments }
What if, as an investor, I have no 2009 Earned Income. Only Capital Gains.
As I am over 50 (58) may I convert $6,000 of a Rollover IRA to a Roth. (I started the conversion process years ago when I had “earned income”)
OK – I make a decision to go ahead with the 2010 ROTH Roll over. even though I am 59, and in my last couple years of Highest Income years. If I make my decision in 2010 and defer my payments to 50% in 2011 and 50% in 2012 and THEN Congress chooses to RAISE the rate after I make that decision (say the rate goes to 50 or more percent for the “Wealthy” in 20011 and or in 20012), I am now subject to the new rate (NOT the tax rate when I made my decision) – right??
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