Window of Opportunity: Convert Traditional IRA to a Roth IRA During 2010


Converting your investments in traditional IRAs to a Roth IRA during 2010 can be an important planning opportunity for many clients. This conversion allows you to move from a tax deferred environment into a tax free environment. While this opportunity is normally only open to those with income below a certain cap amount, during 2010 no such income cap exists. Further, while such conversion is an income taxable event (but without any penalties), conversions during 2010 give you the option to defer the taxable income by recognizing 1/2 in 2011 and 1/2 in 2012. If interested in moving forward with a 2010 conversion, you will likely be better off converting early in 2010 since you are given the power to change your mind by the 2010 tax filing deadline (which can be as late as October 15, 2011, if your tax return is filed timely) and return the assets to the traditional IRA as if the conversion never occurred. If the assets in the Roth IRA appreciate during the year, then you will still be paying income tax based on the lower date of conversion value. If the value of the Roth IRA depreciates during 2010, you may want to transfer the assets back to a traditional IRA to avoid paying income tax on a higher income amount. This Newsletter article reviews the 2010 conversion opportunity and who may want to take full or partial advantage of it.

To view the full article, please click here.

– Richard M. Morgan & Loraine M. DiSalvo


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