Tarpley & Underwood
Financial Advisors, LLC
ROTH IRA CONVERSIONS FOR 2010
A Unique Opportunity for IRA Owners.
You may be tempted to use the current IRA assets to pay the conversion tax, but should you? If you’re younger than 59½, you’re looking at a 10% penalty on the amount you withdraw, and you’ll lose the chance for tax-free compounding of those assets within the Roth IRA.5
Why you might want to fund a Roth IRA this year. In 2009, any withdrawals from a traditional IRA can be used to fund a Roth IRA.6 Interesting. Why is this so?
In years past, mandatory withdrawals from a traditional IRA typically couldn’t be deposited into a Roth IRA. But the federal government has suspended mandatory IRA withdrawals for 2009.7 Any IRA withdrawals made in 2009 are thereby elective withdrawals. So, if your adjusted gross income (AGI) is $100,000 or less, you have an option to fund a Roth IRA with a withdrawal from a traditional IRA – at least through the end of 2009.6
In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan. This year, you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or less. More good news: there is no limit to the conversion amount.1
A potential tax break for those who convert in 2010. If you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns.8
Be sure to consult your tax advisor before you convert. This is a very good idea before you arrange any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets. In any year, you should fully understand the potential tax impact of a Roth conversion on your finances and your estate. Also, remember that while the income limit on Roth IRA conversions will go away in 2010, the income limits on Roth IRA contributions still apply next year and for the foreseeable future.8
These are the views of Peter Montoya Inc., Tarpley & Underwood Financial Advisors, LLC, and should not be construed as investment advice. Tarpley & Underwood Financial Advisors, LLC does not provide tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 kiplinger.com/magazine/archives/2009/01/sweet-deal-on-roth-ira-conversion.html
[1/09]
[1/09]2 thestreet.com/print/story/10505164.html[5/26/09]
[5/26/09]3 smartmoney.com/personal-finance/retirement/estate-planning-with-a-roth-ira-7966/[1/22/09]
[1/22/09]4 smartmoney.com/personal-finance/retirement/roth-iras-you-wanted-to-know-7967/[1/9/08]
[1/9/08]5 smartmoney.com/personal-finance/retirement/roth-iras-to-convert-or-not-7965/[1/10/08]
[1/10/08]6 online.wsj.com/article/SB123033785000236433.html[12/26/08]
[12/26/08]7 usnews.com/blogs/planning-to-retire/2008/12/23/president-bush-signs-pension-relief-bill.html[12/23/08]
[12/23/08]8 kiplinger.com/columns/ask/archive/2009/q0601.htm[6/1/09]
[6/1/09] 
