Roth IRA Conversion Opportunity Approaching

If you have money invested in a traditional IRA, you may want to consider converting all or a portion of your account to a Roth IRA in 2010.  The key difference between these two types of retirement accounts is that your traditional IRA funds represent future tax liabilities when withdrawn, whereas Roth IRA distributions are completely tax free.  With future tax rates likely to go higher, conversion provides an opportunity to get your traditional IRA through the tax window at today’s rates and take advantage of tax-free withdrawals in the future.

Why is 2010 so important? 

Yes, you can convert your traditional IRA now, but only if your adjusted gross income is less than $100,000 in the year of the conversion.  In 2010, this income ceiling is eliminated, allowing anyone to complete a conversion.  In addition, because you need to pay tax on the amount of your traditional IRA account that you convert, the IRS has instituted a special provision for 2010 that allows you to spread the tax due over two years, paying half in 2011 and half in 2012.

Whether a Roth conversion makes sense for you will depend upon several factors including your age, tax bracket, and whether you have funds other than your IRA account that can be used to pay the taxes due on the conversion.  Over the next several months, we will be reviewing your accounts so that we can assist you in determining whether a Roth conversion will help you meet your financial goals.