Roth IRA and 2010…What’s all the Talk About?
Roth IRA and 2010 seem to be in the same sentences in a lot of conversations. What is all of the publicity about? And what does it mean for taxpayers with traditional IRAs?
First, 2010 is the first year that individuals with modified adjusted gross income (MAGI) of greater than $100,000 can convert their traditional IRA to a Roth IRA. With this income limitation being eliminated it will allow for more taxpayers to take advantage of the conversion rules for 2010 and beyond.
Next, 2010 is special because of the deferral option. If a taxpayer converts their IRA to a Roth IRA during 2010, they do not have to recognize the income and tax until 2011 and 2012. If an individual does not want to defer the income and tax, they will need to elect to claim the income in 2010. It is important to note taxpayers can convert after 2010 but will not have the ability to spread the income and tax over two years.
With all of this talk about 2010 it is important to note no one knows what the tax rates will look like in the future. The uncertainty of rates in the future should be factored into the decision making process of a Roth IRA conversion. In the end, 2010 is an important year but it is not an all or nothing when considering an IRA conversion.