Consider Converting Your Traditional IRA to A Roth IRA in 2010
In 2010, you can convert your Traditional IRA to a Roth IRA without the income ceiling limitations. The $100,000 modified adjusted gross income ceiling that previously prevented this conversion will be eliminated, gone, kaput! Thank god for small miracles. The maximum adjusted gross income (MAGI) phase-out limits for contributing to Roth IRAs will be $167,000 for joint filers and $105,000 for single filers in 2010. So, if your MAGI will exceed those limits, you may still contribute to a traditional IRA in 2010 and then, immediately roll it over to a Roth. Voila; just like magic.
More good news: if you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 income tax returns. This opportunity won’t be available if you make a Roth conversion in 2011; so, consider this now in your tax preparation strategy.
Be sure to consult with your tax or financial professional to confirm that converting your traditional IRA to a Roth makes sense for you and that you follow the appropriate steps.
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I think the Roth IRA conversion will definitely be a great option for many. Another point to add is that if you don’t qualify to fund a traditional IRA on a pre-tax basis, you can still fund a traditional IRA on an after-tax basis, thus giving you the ability to convert to a Roth IRA. While your contribution is after-tax, remember, your appreciation is tax-free.
But, as you point out – it may not be for everyone. Here’s some additional factors to considers:
1) Diversify Your Tax Exposure
While certain investments maybe the most tax advantageous today, tax laws change, and its best to give yourself choices if the time comes when you need the cash. In this specific instance, you may not want to convert everything into a Roth IRA because although there is tax-free appreciation, it is possible for tax laws to change.
2) Make Sure You Can Pay the Tax
By converting from a Traditional IRA to a Roth IRA, you will have to ask yourself if you can afford paying the cash for the taxes over the two year period or 2011 and 2012. If you can’t, you have your answer, you can’t convert.
3) Think About Your Family
If you just got married, you need to review your spouse’s retirement plan and see if there are any restrictions on the contributions/deductions to IRAs. Make sure you diversify your tax risk as well.
For more information http://www.bidawiz.com/RothIRAConversion.aspx
Now there’s a talk going on about people converting their IRAs into Roth Individual Retirement Account. Roth Ira is the best for the people who are on the right side of age, because the Roth IRA allows for tax waiver. You can always compare between the pros and cons of a Roth IRA account and a normal IRA account and then decide upon it. For more details refer http://www.prime-targeting.com/ira-vs-roth-ira/