Unsure About Converting To A Roth IRA?

As you’ve undoubtedly seen EVERYWHERE, 2010 is a special year with regard to Roth Conversions.  This is due to two changes to the law that took effect this year: 1) the income limit on Roth Conversions was lifted – previously if your MAGI was greater than $100,000 you couldn’t do a conversion; and 2) there is a special provision for 2010 conversions that allows you to spread the tax over 2011 and 2012.

But maybe things aren’t so clear cut for your situation so that it makes very good sense for you to do a conversion in 2010.  All is not lost!  The only part of this special 2010 set of provisions that you’re missing out on is the tax spread provision.  Although this is a good provision to take advantage of for some folks, it’s not a defining reason to do a conversion without other compelling factors.

Perhaps your tax rate this year and for the foreseeable future is going to be relatively high, making a conversion not such a good idea this time around.  The good thing is that the first part of the law change is permanent:  you won’t have the income limit problem in the future for other potential Roth Conversions.

Of course, if your MAGI is greater than $100,000 it could be argued that a Roth Conversion might not make sense for you anyhow… but the point is, Roth Conversions can be done in 2011, 2012, and for as long as the law allows.  It doesn’t have to be done in 2010.  So, if you’re not sure about doing a Roth Conversion this year, relax – look at it again next year, and the next, and just see then if it makes sense.  And if you need help looking over the numbers for a conversion, just let me know.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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