IRA to Roth IRA Conversion Opportunity
Special Incentives for 2010 Only. Is it right for you?
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Click here to read the complete Executive Summary, available at HBK's website.A recent act by Congress makes it possible for taxpayers  to convert their traditional IRAs to Roth IRAs regardless of Adjusted Gross Income ("AGI") or filing status in 2010 only. There are several reasons a taxpayer might consider a conversion: - Qualified Roth IRA distributions are tax free.
- Roth IRAs are not subject to the required minimum distribution rules that apply to traditional IRAs.
- Since qualified Roth distributions are tax-free, an individual might be taxed in a lower bracket than if they were receiving taxable distributions from a traditional IRA.
- Qualified Roth IRA distributions do not affect the calculation of tax owed on Social Security payments, and they do not affect AGI-based deductions.
It is important to understand that an IRA conversion is treated as a taxable distribution, and will be taxed as ordinary income at your marginal tax rate.
This means you will be taxed on the conversion now, but will not be taxed on qualified distributions later. That can be a significant tax advantage if the value of your Roth IRA has appreciated by the time you start taking distributions.
Although conversion to a Roth IRA does result in immediate taxable income, special provisions for 2010 only give taxpayers the choice of recognizing their conversion income in 2010 OR averaging it over 2011 and 2012.
There are many variables to consider before electing to convert your traditional IRA to a Roth IRA. Please contact your HBK professional for more information.
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