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Is 2010 the time to convert your IRA to a Roth?BY STAFF WRITER—
With new regulations going into effect in 2010, this may be the a good to dust off your quarterly financial statements and pay a visit to a trusted financial advisor to review the role an IRA and its more popular sister, the Roth IRA, should play in your retirement plan. See http://www.irs.gov/taxtopics/tc451.html for more information on IRAs and Roth IRAs. A special opportunity in 2010More taxpayers will be able to take advantage of liberalized Roth conversion regulations in 2010, as the income limit of $100,000 has been lifted. And, to make it even sweeter, you can now convert any or all of your IRA and spread your tax payments over 2011 and 2012. Sounds more like a car dealer than the IRS. The taxes are due on the conversion because money in a traditional IRA resulted in a deduction when you made the original contribution. Money ultimately withdrawn from a Roth IRA is not subject to taxation. Another big advantage of the Roth IRA is that, unlike the conventional IRA, there is no requirement that you take minimum withdrawals after age 70 1/2. So, it can be a better vehicle for accumulating and maintaining wealth into your later years. Talk to an expertRules regarding inheritance of both IRAs and Roths are complex, so you definitely want to discuss this with a tax planner before you do anything, particularly if your estate is potentially subject to estate taxes. The change in rollover regulations has led to the development of some elaborate strategies for people who otherwise wouldn't have considered IRA contributions. For example, some financial advisors have been having their clients in higher income brackets make non-deductible IRA contributions since the new law went into effect in 2006, with the idea that they could then roll the money over to a Roth in 2010. So, if you haven't made an IRA contribution for 2009 yet, you may want to consider doing so with this in mind. The conventional wisdom has long been that you should not convert to a Roth unless you have the cash outside the Roth to pay the taxes. Even here, however, there is at least one financial advisor who argues the advantages of conversion may outweigh the loss of Roth assets to taxes. Regardless of your situation, you'll want to make 2010 the year you talk to a trusted financial advisor and your tax planner to take a second look at IRAs and, particularly, Roth IRAs. (Posted: December 30, 2009) |
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The Individual Retirement Arrangement ("IRA") has been around since 1974. And, because several requirements, based on income and employee-based coverage, have limited participation in the savings plan, it may have declined somewhat in your financial consciousness.