Roth IRA Conversions in 2010

New tax laws for pro­vide new options for con­vert­ing to a Roth IRA in 2010. For the 2010 tax year and fol­low­ing, the mod­i­fied AGI lim­its and fil­ing sta­tus require­ments for con­ver­sions have been elim­i­nated. Fur­ther, income rec­og­nized from a con­vert­ing any other type of IRA to a Roth IRA can be deferred to 2011 and 2012.

Advan­tages of a Roth IRA

• Dis­tri­b­u­tion rules are more flex­i­ble for Roth accounts.
• Most con­tri­bu­tions can be with­drawn at any time with­out penalty.
• A Roth IRA has no pro­vi­sion that requires RMDs.
• There are no age lim­its on con­tri­bu­tions to a Roth account.
• Roth dis­tri­b­u­tions do not affect the tax­a­bil­ity of social secu­rity benefits.

Who Ben­e­fits Most?

Con­ver­sions ben­e­fit some tax pay­ers more than oth­ers. Future changes in the law notwith­stand­ing, the ideal can­di­dates to ben­e­fit from a Roth con­ver­sion are young, wealthy, high-​income earn­ers who won’t need to draw on their Roth and believe that their tax rate in retire­ment will be the same or higher than their cur­rent tax rate.

Change of Heart

If the value of a Roth IRA declines fol­low­ing the con­ver­sion, a rechar­ac­ter­i­za­tion allows tax­pay­ers to effec­tively undo a con­ver­sion. Tax­pay­ers have until six months fol­low­ing the non-​extended due date of their returns — Octo­ber 15^th, for most individuals.

Addi­tional Information

The infor­ma­tion in this arti­cle is not inclu­sive and should not be used as an author­i­ta­tive source for tax advice. If you would like to know more about Roth con­ver­sions and how they would affect your tax sit­u­a­tion, you should con­tact your income tax professional.