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"NEWS NOTES"

From the office of Angle, Zaebst & Associates

Why Some  Individuals May Want to Consider Roth  IRA Conversions in 2010
In order to understand why a Roth conversion may be advantageous, first you need to understand the basics of traditional IRAs and Roth IRAs.
  1. Contributions to traditional IRAs are generally taken as a tax deduction and contributions to Roth IRAs are not.
  2. Withdrawals from traditional IRAs are subject to income tax and withdrawals from Roth IRAs generally are not.
  3. A withdrawal from a Roth IRA prior to the age of 59 ½ that does not meet certain exceptions may be partially subject to income tax.
  4. Any eligible retirement plan, including a traditional IRA, can be rolled over tax free to another traditional IRA. 
  5. If an eligible retirement plan, including a traditional IRA, is rolled over to a Roth IRA, this is called a Roth IRA conversion and the full amount of the rollover is subject to income tax.
An advantage of a Roth IRA (or disadvantage, depending on your point of view) is that the tax is paid now instead of during retirement.  The greater advantage is that the growth in the Roth IRA potentially would never be subject to income tax.  So if you expect the investments in your traditional IRA to have significant growth before you plan to make withdrawals, then you should consider making a Roth conversion at this time.  It is also a good strategy to make this conversion when investments are at a lower point, as they are now after the past economic downturn.
 
Individuals with higher incomes have been prohibited from making Roth IRA conversions, but that rule is slated to go away starting in 2010.  Also, anyone who makes a Roth IRA conversion in 2010 has the option of delaying the taxation of that event and spreading it over 2011 and 2012.  For example, if you convert $100,000 to a Roth in 2010, you can report $50,000 each on 2011 and 2012 tax returns and spread out the tax liability over two years, or you have the option to include the $100,000 on your 2010 tax return and pay the tax.
 

Making the decision about converting to a Roth IRA will depend on your individual situation and some predictions of future events.  We would be happy to discuss your particular circumstances and help you to make a decision about this strategic retirement planning idea.

Angle, Zaebst & Associates
330-425-4422 fax 330-425-8422
Referrals are always appreciated!
Each entity or person's situation is unique and should be analyzed based upon all of the laws and regulations that exist at the time of a decision. Although we try to send current and accurate information, laws change and can be complex. The information presented in this e-mail should not be construed as legal, tax or accounting advice. You should consult with Angle, Zaebst, & Associates CPA's or other professionals familiar with your particular factual situation for advice concerning specific tax or other matters before making any decision.