Income Limits on Roth IRA Conversions Set to End

December 22nd, 2009  |  Published in IRA, Roth IRA  |  3 Comments

Currently if you earn over $100,000 you are not eligible to convert your Traditional IRA to a Roth IRA. The Tax Increase Prevention and Reconciliation Act of 2005 abolished the income limit and the change will take effect as of Jan. 1,2010. The government has also included a one-time option to spread your tax payment over two years. If you convert in 2010 you could pay 50% of the tax owed in 2011 and 50% in 2012. You will need to plan ahead to decide whether it is better for you to pay the total tax bill in one year or two.

Whether you should choose to convert or not is another question. This depends on whether you would come out ahead paying the taxes at the time of conversion or when you retire.

Also as noted in a previous 2010 Traditional IRA conversion post the removal of the income limits for conversion creates a loophole that effectively removes the income limits for contributing to a Roth IRA.

  

Responses

  1. Income Limits on Roth IRA Conversions Set to End | Retirement Financial Planning | Retirement Living | Retirement Information says:

    December 24th, 2009 at 1:03 am (#)

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  2. Randy Little says:

    March 12th, 2010 at 1:12 am (#)

    Crazy not to do this if you are atleast under 50 years old. If you save cash in your 401k and get tax deferred, you are getting taxed on money that you have accumulated over a large amount of time.

    It is much better to pay the tax up front, then earn a massive amount of money over the time and not pay tax on the earned income.

  3. Randy Little says:

    March 12th, 2010 at 1:17 am (#)

    Of course, there is a reason that this is being done, atleast in my eyes. Most of the wealthy people/upper class will be doing this for those exact reasons. The government may not get a second loan from China because of what we have been doing with this cash, and with our rates, and how we are running this country in general. I agree with China… We are being irresponsible and being unethical on basically every level of business, and need to insert capital punishment onto many of these people.

    At anyrate, this is a way for the government to pull in a massive amount of money in a spread out 2 year period to help get us by as the government takes the economic hit. While in late 2010 they will be working on cutting the budget (defense contracts, social security, entitlements, etc). This will hopefully include politicians, since they are paid for life just by being in office for 1 term. (and free health-care).

    This means we have 2 years, and Obama/Congress will be sinking us or saving us.