Roth IRA Conversions
Rev. 12/18/09; E-mail Alert 2009-20

Under a law change effective January 1, 2010, individuals who were formerly ineligible to convert to a Roth IRA [from either a traditional IRA, qualified plan [such as a 401(k)], 403(b) or governmental 457(b)], will become eligible.

Current law allows individuals to convert a traditional IRA into a Roth IRA if their adjusted gross incomes (AGI) is less than $100,000 and if married, they file a joint return. Effective January 1, 2010, the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) eliminated the AGI limit and the requirement that married individuals must file jointly.

Taxpayers who convert their traditional IRA into a Roth IRA in 2010 have two options for paying taxes on the conversion amount.  One, pay the income tax for the 2010 conversion in 2010; or two, pay tax on half the amount in 2011 and half in 2012. This second option is only available for a conversion occurring in 2010.

Example
Jane decides to convert $200,000 from her traditional IRA into a Roth IRA in 2010.  The next decision she must make is:

• Include the $200,000 as gross income for 2010; OR
• Include $100,000 as gross income for 2011; include the next $100,000 for 2012.

 

Click here to sign up for our new Roth Conversion and Portability eSeminar, which goes into great detail on this new provision.