Roth Conversion
Rev. 03/11/10; E-mail Alert 2010-4

Whether a Roth conversion is right for an individual depends on a variety of factors, here are a number of them:

• Tax-free earnings: Roth IRAs provide a source of tax-free earnings after retirement. Once the "qualified distribution" rules are met the earnings are tax-free
• To satisfy the "qualified distribution" rules: two criteria must be satisfied:
  1. Roth IRA must have been in existence for five years, and
  2. the Roth IRA owner must either attain age 59 1/2, become disabled, or die
• 2010 conversion Tax Options: A 2010 Roth conversion provides the option to pay income tax now in 2010; or pay tax on half the distribution in 2011 and on the other half in 2012. This is only available for Roth conversions made for 2010 (by tax filing deadline)
• For your consideration... The four top tax brackets in 2010:
  25%, 28%, 33% and 35%
  The four top tax brackets starting in 2011, unless Congress passes new legislation:
  28%, 31%, 36% and 39.6%
• A rule of thumb: if the tax rates are lower now than when a distribution is made later, then the Roth conversion is generally beneficial
• More good tax news: Qualified Roth distributions are not included in income for purposes of determining whether Social Security benefits are taxable
• Estate tax planning: no required minimum distributions (RMDs) on Roth IRAs, thus, more would be left to the beneficiary
• Beneficiary Distribution May Also Have Tax-Free Earnings: When the Roth IRA owner dies, if the "qualified distribution" rules are satisfied, the distribution(s) to the beneficiary(s) will not be subject to income tax
• Keep in mind the following:
  1. A conversion of pre-tax retirement funds to an after-tax Roth IRA involves having the money to pay the taxes on the amount converted
  2. A longer time horizon until retirement will enable the regeneration of the funds used to pay taxes
  3. In order to make a Roth conversion from a qualified plan, such as a 401(k), a distributable event is necessary
• Many conversion calculators exist to help with projections: for an example, click here

For more information, check out our Roth Conversion and Portability eSeminar by clicking here and

To check out our parent's, Newkirk Products, Roth IRA conversion products click here.