Converting traditional IRAs and qualified retirement plan accounts to Roth IRAs is a hot topic today. The reason: the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) repealed the income limits on eligibility to make a conversion after 2009, so anyone is eligible to make a conversion in 2010 and later years. Here are some key points to take into account in deciding whether to make a conversion this year and how much to convert.
Basic Rules
Starting this year, anyone, regardless of income or filing status, can opt to convert a traditional IRA or qualified retirement benefits to a Roth IRA (Code Sec. 408A(c)(3)(B) repealed). The advantage for making a conversion is the opportunity to build tax-free income for the future. Moreover, because there are no required minimum distributions from a Roth IRA during the owner’s lifetime, there is also the prospect of creating a sizable legacy if the funds are not needed during retirement. The main disadvantage to making a conversion is having to pay income taxes now on the amount converted rather than deferring taxes until such amounts are withdrawn.
