You will soon be bombarded with the name “Roth” in the media because of some changes coming next year. Beginning in 2010, two important changes are scheduled to take effect for converting to a Roth.
the income limit requirement ($100,000 or less of income) for Roth IRA conversions will no longer be in effect. However, income limits for Roth IRA contributions will remain in effect.
conversions to a Roth IRA that occur in 2010 will allow the you to spread the taxable income from the conversion ratably over a two-year period in tax years 2011 and 2012.
The decision to convert your IRA or employer plan is not an easy one. Here are some factors to consider that can help you determine whether you would be a good candidate.
Conversion to a Roth IRA may be appropriate if:
You have enough money outside of your IRA or employer plan to pay the taxes – example: if you convert $200,000 IRA to an Roth and you are in the 25% income tax bracket, you will owe $50,000 in taxes on the conversion.
For 2009 – Your modified adjusted gross income is $100,000 or less.
You expect to be in the same or higher tax bracket when you retire (I predict we will all be in a higher tax bracket over the next decade or two).
You have at least 10 years before you need the spend the assets.
You wish to eliminate having to take Required Minimum Distributions from these funds during your lifetime.
Conversion to a Roth is NOT appropriate if:
You will need to tap your retirement account to pay the taxes on a conversion.
For 2009 – Your income is more than $100,000.
You expect to be in a lower tax bracket when you retire.
You will be spending the money sooner than 10 years from now.
