To switch or not to switch: Roth IRA conversions?

One of the questions we have been asked a lot lately is what is the deal with Roth IRA’s and 2010?


The new 2010 details:

Beginning in 2010, two important changes are scheduled to take effect for converting an IRA (traditional SEP or SIMPLE) or other eligible qualified retirement plan to a Roth IRA. First, the income limit for Roth IRA conversions will no longer be in effect, allowing more people to take advantage of a Roth IRA. However, income limits for Roth IRA contributions will remain in effect. Second, none of the income from the Roth IRA conversion will be included on your 2010 personal income tax return (unless an election is made). Instead, half of the income from the conversion will be reported on your 2011 personal income tax return and the other half will be reported on your 2012 personal income tax return.

For those of you who don’t know….what is a Roth IRA?

Unlike traditional IRAs, contributions to a Roth IRA are never tax-deductible. However, the money in your Roth IRA, including earnings, can be withdrawn tax-free after the later of age 59 ½ or five years.

Should you convert from a Traditional IRA to a Roth IRA?

In order to answer that question we would need to know your total financial situation, for example:

• Do you have enough money outside of your IRA or employer plan to pay the taxes?
  
• Do you wish to eliminate having to take Required Minimum Distributions from these
  funds during your lifetime?
  
• Do you expect to be in a different tax bracket when you retire?
  
• Will you be leaving the IRA to your heirs or a charity?
  

Please contact us so that we can help you in making the right decision.