Converting to a Roth in 2010
With the lure of tax-free distributions, Roth IRAs have become popular retirement savings vehicles since their introduction in 1998. But if you're a high-income taxpayer, chances are you haven't been able to participate in the Roth revolution. Well, new rules apply in 2010 that may change all that.
Prior to 2010, you couldn't convert a traditional IRA to a Roth IRA if your income level ("modified adjusted gross income" or MAGI) exceeded $100,000 or you were married and filed separate federal income tax returns. In 2006, however, President Bush signed the Tax Increase Prevention and Reconciliation Act (TIPRA) into law. TIPRA repealed the $100,000 income limit and marital status restriction, beginning in 2010. What this means is that, regardless of your filing status or how much you earn, you can now convert a traditional IRA to a Roth IRA. There's one exception—you generally can't convert an inherited IRA to a Roth, and special rules apply to spouse beneficiaries.
Wisconsin update 3/15/2010: Wisconsin Governor Jim Doyle signed a bill that brings the state treatment of Roth IRA conversions into line with federal treatment. The state Assembly and Senate passed the bill in February. Before this law, Wisconsin was the only state in the country with restrictions on Roth conversions. Now the potential benefits of a Roth IRA conversion are open for all state taxpayers at all income levels to consider.
The fact that you qualify to convert funds from a traditional IRA to a Roth IRA doesn't necessarily mean you should. There are a number of factors that you need to consider. Discuss your personal situation with an Annex Advisor.
