Roth Conversions Will Be Easier in 2010
Roth IRAs are desirable because distributions are tax free as long as you’ve had the Roth for at least 5 years. This can be particularly beneficial if you think tax rates will be higher in the future. With our current economic crisis and announced government spending plans, higher rates seem inevitable. Unlike regular IRAs that require minimum distributions to be taken when you reach age 70 and ½, Roth IRAs do not require you to take minimum distributions. This allows you to let your Roth grow tax-free for as long as you want.
Starting January 1, 2010, as a result of the Tax Increase Prevention and Reconciliation Act of 2006, the government is eliminating the $100,000 income limit for conversions to Roth IRAs. You’ll still have to pay the income taxes on the pre-tax amounts converted but will be able to spread the amount converted equally across your 2011 and 2012 tax returns, paying any resulting tax in those years. Lastly, whatever you do, don’t convert unless you can pay the taxes due with funds from outside the IRA you plan to convert.
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