Up until January 1, 2010 the income limit for making a conversion from a
traditional IRA to a Roth IRA was $100,000. In 2010 anyone can make a
conversion, regardless of their income.
If you don't currently have any traditional IRA accounts and want to put away
more money for retirement this is great opportunity to start building a tax-free
pool of assets to draw from in retirement. You can do this by simply opening a
traditional IRA, making a non-deductible contribution and then converting it to
a Roth IRA. Under current law, you can continue to do this every year until you
retire, effectively removing the annual income limit on Roth IRA contributions.
If you already have some money in any type of IRA other than a Roth (SIMPLE,
SEP, Rollover or traditional) things are a little more complicated. When you
convert to a Roth IRA you will have to pay tax on any money in your traditional
IRA that you didn't already pay tax on. That means, any contributions that you
deducted from your taxes, any rollovers from pre-tax employer sponsored plans
and any earnings inside your IRA will be taxed. About the only thing that is not
taxed when converting to a Roth IRA is any non-deductible contributions you
made to your IRA over the years. And the law is written so that you cannot pick
and choose between your taxable and non-taxble portions of your conversion.
Instead you must pay tax on a pro-rata basis of all your IRAs regardless of which
one you actually convert. One way to potentially get around this is to transfer all
our existing IRAs (or at least the amounts you don't want to convert) to an
employer sponsored plan like a profit sharing or 401K plan. The balances in
employer plans except a SEP or SIMPLE IRA plans will not be considered in the
tax calculation for your conversion.
There are several more details so if you'd like to consider an Roth Conversion,
check out the video and then contact us.
traditional IRA to a Roth IRA was $100,000. In 2010 anyone can make a
conversion, regardless of their income.
If you don't currently have any traditional IRA accounts and want to put away
more money for retirement this is great opportunity to start building a tax-free
pool of assets to draw from in retirement. You can do this by simply opening a
traditional IRA, making a non-deductible contribution and then converting it to
a Roth IRA. Under current law, you can continue to do this every year until you
retire, effectively removing the annual income limit on Roth IRA contributions.
If you already have some money in any type of IRA other than a Roth (SIMPLE,
SEP, Rollover or traditional) things are a little more complicated. When you
convert to a Roth IRA you will have to pay tax on any money in your traditional
IRA that you didn't already pay tax on. That means, any contributions that you
deducted from your taxes, any rollovers from pre-tax employer sponsored plans
and any earnings inside your IRA will be taxed. About the only thing that is not
taxed when converting to a Roth IRA is any non-deductible contributions you
made to your IRA over the years. And the law is written so that you cannot pick
and choose between your taxable and non-taxble portions of your conversion.
Instead you must pay tax on a pro-rata basis of all your IRAs regardless of which
one you actually convert. One way to potentially get around this is to transfer all
our existing IRAs (or at least the amounts you don't want to convert) to an
employer sponsored plan like a profit sharing or 401K plan. The balances in
employer plans except a SEP or SIMPLE IRA plans will not be considered in the
tax calculation for your conversion.
There are several more details so if you'd like to consider an Roth Conversion,
check out the video and then contact us.
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| Copyright © 2009 Honu Wealth Management |
2010: The Year of the Roth IRA Conversion? 09/17/2009
I have been fielding lots of questions about Roth
IRA conversions lately and wanted to give a quick
overview of the new opportunity that starts in
January 2010 for high income earners to finally
participate in the Roth IRA.
IRA conversions lately and wanted to give a quick
overview of the new opportunity that starts in
January 2010 for high income earners to finally
participate in the Roth IRA.