New Rules for the IRA to Roth Conversion in 2010

There are several new rules for an IRA conversion from a traditional to a Roth account starting in 2010. As an investor, you will benefit from knowing the details of these rules and how they will affect your finances.

No Income Limits

Whether you are filing as single or with a spouse, the previous adjusted gross income limit of $100,000 will no longer exist. This gives high wage earners the opportunity to open and benefit from a Roth IRA.

Not Required to Pay All the Tax in 2010

Even though 2010 is the first year many can convert to a Roth IRA, the tax due can be deferred until 2011 and 2012. For instance, if an investor has a traditional IRA worth $200,000 and she converts it to a Roth in 2010, she has the option of reporting the entire amount on her 2010 return, or she can report half ($100k) in 2011 and the other half ($100k) in 2012.

Income Restrictions Are Still in Place

The conversion limit is long gone, but this does not mean that income restrictions are no longer in place. If your income exceeds the phase out limits, you will not be able to contribute additional money to your Roth. Fortunately, you can get around this rule by contributing to a traditional IRA and then immediately converting your funds to a Roth IRA.



What are the Roth IRA conversion rules for a SIMPLE IRA?



Understanding the Roth IRA conversion rules can help you avoid problems when you transfer money from a SIMPLE IRA over to your Roth IRA. Once you set up a SIMPLE IRA, you cannot transfer money out of it for at least two years. After the two year time limit has been met, you have to count the amount of the conversion as taxable income. The amount that you convert will be added to your annual income and you will have to pay taxes on it before it can be converted to the Roth IRA. 

blog comments powered by Disqus