Can you convert your traditional IRA to a Roth IRA?
Rev. 10/30/09; E-mail Alert 2009-17

Yes, beginning in 2010. Effective January 1, 2010, a provision in the Tax Increase Prevention and Reconciliation Act of 2006 (TIPRA) eliminates the $100,000 limit on adjusted gross income (AGI) that previously prevented higher income taxpayers from converting a traditional individual retirement account (IRA) to a Roth IRA. This change opens up a number of retirement and tax planning opportunities for both employees and plan sponsors.

2010 Conversion Rules
Taxpayers who convert a traditional IRA into a Roth IRA in 2010 have a special opportunity for paying the income tax due on the conversion amount. Ordinarily, the taxpayer would include the total amount as income for the 2010 tax year. Under the new law, instead of paying income tax on a 2010 Roth conversion in the same year, taxpayers can opt to defer their tax burden by a year and then spread it over two years, paying equal amounts in 2011 and 2012. This relief applies only to Roth conversions 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 whether to:

• Include the full $200,000 in gross income for 2010, or
• Include $100,000 in gross income for 2011 and another $100,000 in 2012.

Bill Grossman, ERPA, QPA

For more information on Roth IRAs, click here to
register for our eSeminar on the conversion to a Roth IRA
and the portability of Roth funds.