7 IRA Changes That You Must Know for 2011

Change is something that is typically hard to embrace.  We all get stuck in our usual routines, and having to adapt and learn something new can be cumbersome.   I think the following quote sums it up best:

Change is inevitable – except from a vending machine.  ~Robert C. Gallagher (Insert Laugh Here)


When it comes to the financial industry, change is inevitable.   In fact, it’s a full time job just trying to keep up with everything.   In 2011, there were pretty significant changes to Individual Retirement Accounts (Traditional and Roth).   Here is a breakdown of 2011 IRA changes for your reference.

1. Conversion Still in Affect, Just No Deferral

If you’ve been by the blog, you know that I covered the Roth IRA conversion event very extensively. If you converted a traditional IRA to a Roth IRA in 2010, you could opt to divide the income resulting from the conversion between your 2011 and 2012 federal tax returns. (If you did go Roth in 2010, you have until October 17, 2011 to choose this income deferral option.) You don’t have this choice in 2011 – the income can’t be deferred to a future tax year.  What you convert this year, must be all paid this year.

What has remained the same is the AGI restriction.  As of now, the $100k AGI limits have been eliminated so anyone can do a Roth Conversion if they choose.

2. The IRA charitable rollover is back.

A very exciting feature is back for those that have IRA’s and a philanthropic heart. In 2011, IRA owners aged 70½ or older can again donate IRA proceeds to charity tax-free. The Tax Relief Act of 2010 brought back the opportunity, at least for this year.

A charitable IRA rollover lets an IRA owner gift up to a total of $100,000 in IRA assets to one or more qualified charities or non-profit organizations. The distribution has to go directly from the IRA custodian to the charity. You don’t get a tax deduction for the move, but you could use this qualified charitable distribution to fulfill some or all of your 2011 RMD.

3. Tax Extension for Your 2010 IRA contribution.

The District of Columbia observes Emancipation Day on April 15, so the deadline for your 2010 IRA contribution is April 18, 2011.  If you do make the contribution in 2011, be sure to remind your IRA custodian that the contribution is for 2010 so they can code it properly.  Also, see my other post regarding “Don’t Miss Your IRA Contribution Deadline”.  Moral of that story is: Just because you have until the 18th to do so, does not mean you should.

4. Go Roth with your 401(k) or 403(b) in 2011.

As a result of the Small Business Jobs Act of 2010, some employer-sponsored retirement plans are now allowing in-plan Roth conversions, i.e., the chance to “convert” a percentage of the pre-tax dollars you have saved to after-tax dollars without the necessity of a rollover to a Roth IRA. However, there are criteria to meet.

  • Your employer’s retirement plan document has to permit after-tax Roth contributions.
  • You must be older than 59½, or you have to have assets in a 401(k) or 403(b) account at a past employer that could potentially be rolled over to your current employer’s plan.

How do you find out? The best way is to talk to your HR department or get in touch with your plan administrator.  This is all plan specific.  Some may allow while others may not.

5. Roth IRA Phase-outs Limits Higher 2011

While anyone can convert a traditional IRA to a Roth IRA, not everyone can contribute to a Roth IRA because of AGI limits. For 2011, those phase-out limits have increased by $2,000 for joint and single filers. The phase-out range for joint filers and qualifying widows this year is $169,000-179,000. For single filers, it is $107,000-122,000.

6. Traditional IRA Deduction Phase-outs Increased 2011.

I just met with a couple that both had jobs and employer-sponsored plans (401k and a 403b).  They were both excellent savers and had already maxed them out out both.  They were excited of the notion of taking out Traditional IRA’s and getting a further tax deduction.  Unfortunately, I was the bearer of bad news.

If you own an IRA and participate in an employer-sponsored retirement plan, your IRA contributions may or may not be deductible, depending on your MAGI. In 2011, the MAGI phase-out ranges are bumped up slightly to $90,000-110,000 for joint filers and qualifying widows and $56,000-66,000 for single filers and heads of households.

My couple far exceeded the MAGI limits, so they were a little disheartened.  That is until I told them about the benefits of the Roth IRA.  They then perked up a bit :)

7. One thing that hasn’t changed…

With minimal inflation for 2010, there was no COLA to send the annual IRA contribution limit higher. You may contribute up to $5,000 to your IRA in 2011, $6,000 if you are 50 or older. If you have more than one IRA, your total 2011 IRA contributions to your IRAs cannot exceed the above limits.  This even applies if you have IRA’s open up at different financial institutions i.e.; bank, credit union or brokerage firm.  The IRS will look at them all as one IRA.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

Sources

  • irs.gov/newsroom/article/0,,id=233910,00.html [1/14/11]
  • irs.gov/publications/p17/ch17.html#en_US_2010_publink1000252730 [1/14/11]
  • irs.gov/retirement/article/0,,id=202510,00.html [11/1/10]
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