Not too late to go back on conversion to Roth IRA - Pioneer Press |
| Not too late to go back on conversion to Roth IRA - Pioneer Press Posted: 29 Oct 2010 06:23 PM PDT Earlier this year, many investors made the move of converting their traditional IRA to a Roth IRA. This move is popular this year because no longer are taxpayers with incomes of more than $100,000 prohibited from converting. As the year nears its end, those converters are now in a position to decide if they should keep the conversion or undo it. Investors are allowed to undo a conversion once a year up until the time they file taxes, which could be as late as April 15. They would then have to wait until the following year to convert again, unless it's done in December; then the wait is 30 days. Why would someone go back to a traditional IRA? The main reason is if the value of the investments in the IRA has fallen. Why pay tax on a $100,000 IRA at time of conversion when the current value is $90,000? But even if the value is a little lower, it may make sense to keep the conversion. For this year only, taxes on the conversion are allowed to be split between 2011 and 2012 tax years. This allows the investor to delay paying the full tax due now until April 2013. Of course, there are unknowns: the tax rate and the taxpayer's income in 2011 and 2012. If income is expected to rise, it might make sense to pay it all for 2010, if that means paying in a lower tax bracket. The same goes if tax rates are expected to go up in the next two years. Keeping the Roth also means keeping the benefits. That means tax-free withdrawals in retirement, rather than taking required minimum distributions starting at age 70 1/2. Traditional IRA distributions could push wealthy couples' taxable income above $250,000, which would result in an additional 3.8 percent Medicare surtax starting in 2014. There is also talk in Washington of subjecting that IRA income to Social Security tax.The Roth IRA also helps beneficiaries of the account. Since taxes were already paid, those inheriting it would not have to pay taxes on withdrawals and would not have to take the required minimum distributions. Unfortunately, the best choice on IRA conversions won't be known until later, when tax rates, income levels, investment returns and life expectancy come to light. This is where a financial planner can help. The biggest benefit to keeping the conversion is to lock in taxes and not have to worry about the tax in retirement. Reach Dan Serra at serrafinance@yahoo.com. This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
| You are subscribed to email updates from Personal-Finance - Bing News To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google Inc., 20 West Kinzie, Chicago IL USA 60610 | |
0 comments:
Post a Comment