Is this a Good Time to Convert?
There is a conversion tax to pay when you convert your traditional IRA to a Roth IRA but there may be advantages to converting now. If you’re one of the many people who have noticed a significant drop in your IRA due to the stock market and economy then this would be a great time to convert as you would have less to pay in taxes. Though it is discouraging to see your account balance drop, you will be able to enjoy the tax free money in the future.
If you convert to a Roth IRA in 2009, then you have to pay the full amount of the income taxes due for the year (due April 15, 2010 for most). If the market recovers in 2009 and the value of your account appreciates then you will have a larger income tax bill to pay. However, if things remain as they are (or get worse—I hope not!) then you will have less to pay in conversion taxes and more to gain in the future.
The advantage to waiting until 2010 to convert is the opportunity to pay the conversion tax in two payments; half in 2011 and the balance in 2012.
Some people are under the impression that they have to wait until 2010 to covert their traditional IRA to a Roth IRA. This is not true unless your adjusted gross income is over $100,000 for a married couple filing jointly. The 2010 Roth IRA Conversion allows anyone, no matter what their income is, to convert.
The 2010 Roth IRA Conversion
If you have money in a traditional IRA and wish to convert to the Roth IRA you can do so now if your adjusted gross income is less than $100,000 per year. If your income is over the limit the Roth IRA Phase-out Limits leaves you without the advantage of being able to convert at this time. But don’t get upset yet…There is a solution. The 2010 Roth IRA Conversion event eliminates this problem so that anyone will be able to convert from traditional to Roth IRA.
The Conversion Tax
Retirement planning is no simple endeavor; it can be quite complicated and overwhelming for most people. It is a good idea to speak to your tax professional or financial advisor before implementing this strategy to see if it works to your advantage.
Michael McGee is a financial advisor who understands all the terms and conditions and income tax advantages to investing in a retirement plan. Michael is well-qualified to analyze your financial situation and to advise you as to what type of investment account to have to secure your future. Read more articles by Michael McGee at http://retirementplanningoaklandcounty.blogspot.com/
There is an income tax penalty for converting a traditional IRA to a Roth IRA but the benefits of having a Roth IRA outweigh the conversion tax. If you convert from a traditional IRA to a Roth IRA then you will have to pay the tax owed in that current year; however, the IRS will allow you to defer some of the tax owed in 2010. If you convert in 2010, you will only have to pay half of the tax in 2011 and the rest in 2012.
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