On The Money

Weigh your options for Roth conversions in 2010 by Tim Steffen, financial and estate planning manager at Robert W. Baird & Co.

Starting in 2010, high net worth individuals who earn $100,000 or more will be eligible to convert their traditional IRA to a Roth IRA, an opportunity previously unavailable to them.

The popular Roth IRAs were introduced in 1998 and offer the opportunity for completely tax-free withdrawals, a potentially significant long-term advantage over traditional IRAs that face taxes at withdrawal. Roth IRAs also offer additional benefits because they do not require withdrawals after age 70½ unlike traditional IRAs. 

The new rules removing the income restrictions on conversions, adopted as part of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), also create a one-time tax incentive to make the conversion in 2010. Those who convert next year will be able to defer the income recognition associated with a Roth conversion over the two subsequent years (2011 and 2012). All other conversions in years after 2010 will generate taxable income in the year of conversion.

To read more, click here.

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