Roth Conversion Opportunities
Beginning January 1, 2010, investors will have the opportunity to convert to a Roth IRA regardless of their modified adjusted gross income or tax filing status. Assets in a Traditional IRA, SEP IRA and qualified plan (401(k), 403(b), 457) are eligible to be converted to a Roth IRA. Assets in a SIMPLE IRA are eligible after 2 years from the first deposit.
For 2010 conversions only, investors have two options for the payment of taxes due on the conversion:
- Elect to report the amount you converted in 2010 on your tax return for that year.
- Spread the amount converted equally with 50% on your 2011 and 50% on your 2012 tax returns. You will then pay any resulting tax based on the tax filing status and income tax rates applicable in those years.
All taxes on conversions before and after 2010 will be due in the conversion year.
Benefits of Roth IRAs
- Tax-free compounding of earnings
- Tax-free and penalty-free distributions after 5 years and age 59½.1
- There are no required minimum distributions for those age 70½ and older during their lifetime and the lifetime of their spouse beneficiaries. (RMD's are required from an Inherited Roth IRA).
Links to Additional Information:
To learn if a Roth conversion is a strategy that might benefit you and your family, please contact your Moors & Cabot financial advisor.
1 Qualified Roth IRA distributions are not subject to state and local taxation in most states. Qualified Roth IRA distributions are also federally tax-free provided a Roth account has been open for at least five years and the owner has reached age 59½ or meets other requirements. Distributions taken prior to age 59½ may also be subject to a 10% Federal tax penalty.
Roth conversions are not suitable for all investors. This material has been prepared for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading/investment strategy. Investors need to make their own decision based on their specific investment objectives, financial circumstance and tolerance for risk. Please contact your financial professional and/or tax advisor for more information on planning for retirement and to find out if a Roth conversion may be suitable for your specific situation.
Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that may have tax or legal consequences.