Roth IRA Income Limit for a Roth IRA Conversion
A Roth IRA conversion may present an opportunity for high net worth individuals to get a portion of their retirement investments into a tax-free Roth IRA account.
The Roth IRA income limit for those who can convert their retirement investments from a traditional IRA to a Roth IRA (now applicable to anyone with a modified adjusted gross income of $100,000) disappears permanently in 2010.
Although this opportunity does not occur until 2010, knowing about it now will enable you to prepare. If you are a high-net-worth individual and if you have been unable to do a tax-deductible IRA contribution, the elimination of the Roth IRA income limit may be a way for you to get some of your retirement investments into a tax-free Roth IRA account.
The reason you should become aware of this opportunity now is so that you can prepare for the tax consequences of the Roth conversion. The income taxes on any portion of the retirement investments you convert in 2010 are not going to be due until you file your 2011 return, unless you elect otherwise. This will occur in 2012. The IRS is actually giving taxpayers as many as three more years to pay the taxes on any dollars converted in 2010. You would pay 50% when you file your 2011 return (in 2012) and 50% when you file your 2012 return (in 2013). If you start planning now, you should have sufficient time to accumulate the money you are going to need, unless of course, you already have sufficient funds in other accounts for this purpose.
As you may know, this Roth IRA conversion opportunity for high-net-worth individuals originated in May of 2006 with the enactment of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). Under TIPRA, the Bush administration’s lower long-term capital gains rates—which had been reduced from 20% to 15%—where extended for two more years, through 2010. Also under TIPRA, Congress extended the lower 15% tax rate on dividends through 2010; dividends typically had been taxed at ordinary income tax rates. Furthermore, because Congress had previously imposed on itself a requirement that every tax bill must be revenue neutral, the provision pertaining to the Roth IRA income limit included as part of TIPRA disappears permanently in 2010.
A Roth IRA conversion is a very interesting opportunity, especially among high-net-worth individuals who have not been able to make a tax-deductible IRA contribution since the late 1980s.
If you would like to know if a Roth IRA conversion may present an opportunity for you and if you live near Pittsburgh, contact Bill Griffith, Jr., CFP® of W.E. Griffith & Associates, LLC, a wealth management firm located in Washington, Pennsylvania. He has been providing specialized strategies and services for ensuring long-term financial independence and security for many years. He has written numerous articles about various topics relevant to personal financial planning, money management, retirement and investment planning.
Return from Roth IRA Conversion to Retirement