If the Answer is Yes, Consider a Roth IRA
With the year end approaching, have you considered converting your traditional IRA to a Roth? With the uncertainty of tax rates, 2010 may be the right year for your conversion. As you look at your 2010 tax picture, you should ask yourself:
- Am I in a low tax bracket this year?
- Will I have business losses or NOLs?
- Do I have high deductions this year?
If the answer is yes to any of these, you should at least consider whether a Roth conversion makes sense. Remember for conversions completed in 2010 only, you are allowed the option to defer the income and the tax until your 2011 and 2012 returns.
New changes regarding Roth conversions were included in the Small Business Jobs and Credit Act of 2010. Now taxpayers who have 401(k), 403(b) and 457(b) accounts can roll these funds into an employer-sponsored Roth account. The details on this new law are somewhat tricky and you should consult your tax advisor if you are interested in this law change. Similar to a conversion of a traditional IRA to a Roth, the amount converted will be taxable, but if completed in 2010, you are also allowed the option to defer until 2011 and 2012.