Broker Check

Boca Raton Office

1001 W. Yamato Rd

Suite 306
Boca Raton, FL 33431


Winter 2010 Edition

As you may know, as of January 1, 2010, you can convert from a conventional IRA, 401(k) and 403(b) account, in whole or in part, without regard to your income.  There is, of course, a big catch: any untaxed dollars that have accumulated in these conventional retirement accounts and shifted to a Roth vehicle will be taxed upon conversion.  Nonetheless, there are a few relatively straightforward scenarios that may favor a Roth conversion.  

The Roth conversion opportunity has been in the works since 2006, when Congress enacted the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA).  The law did not change income-based restrictions on ongoing contributions to Roth IRAs. 

The law did contain a provision intended to lessen the tax bite if you convert in 2010.  Specifically, you can shift half of the income tax liability to 2011 and the other half to 2012.  The income attributable to the conversion would simply be added to other taxable income in those years, and taxed at whatever marginal tax rate applies at that time.  Based on your future income and tax rates, you can decide whether such an “income-splitting” rule is beneficial to you or not.

The Roth conversion decision is dependent on numerous factors:  your viewpoint about where tax rates are headed, where the market is going, your income needs for the future and legacy concerns.  Another variable is the extent you have outside dollars available to pay the tax upon conversion. 

Having said that, there are at least a couple of scenarios that more clearly favor a Roth conversion:\

  • Desire to leave Roth IRA to children or grandchildren
  • Converting IRAs that have been funded with nondeductible contributions

As you can see, it’s not a simple all-or-nothing proposition.  It’s really about financial planning.  Please call us to arrange an analysis of your situation to see whether a Roth conversion is right for you.

Any tax advice contained herein is of a general nature.  You should seek specific tax advice from your tax professional before pursuing any idea contemplated herein.  This advice is being provided solely as an incidental service to our business as financial planners.