5 Things You Need to Know About Roth IRA Conversions

Remember when 2010 seemed like light years away?  We’re already six months in to 2009 and will soon be celebrating the New Year. The year 2010 brings a lot of uncertainty within the financial realm with estate planning and sunset provisions in question.  One thing that is certain is that the 2010 Roth IRA conversion is just around the corner.  Still, many are confused and not certain of what the conversion really means to them.  Here is a look at  five things that you need to know about the 2010 Roth IRA conversion.

1.  The adjusted gross income level of $100,000 will become nonexistent for the ROTH IRA conversions in 2010.

2.  You don’t have to wait until 2010. For wage earners that make less than $100,000 adjusted gross income, you can actually convert now.  With the market being down this might be an excellent time to convert since you will be paying less income tax on the lower account value.

3.  2010 is the year but not the year the tax is due. The IRS has granted you the ability to pay 50% in 2011 and the remaining 50% in 2012.  Keep in mind that this is only in 2010.  After that, the taxes will all be paid all in the following year going forward. 

4.  You can save taxes now. Knowing that the event is just around the corner, and if you know that you are going to convert in 2010, it might make sense to go ahead and start accumulating the tax money now. 

5.  Convert IRAs and Old 401(k)s. The 2010 conversion is not limited to just your traditional IRA.  If you have any old 401(k)s or any other retirement plans from a previous employer, those will also be allowed to convert as well.  Might be a good idea to convert them all.

*Restrictions, penalties and taxes may apply.  Unless certain criteria is met, Roth IRA owners must be 59 1/2 or older and have held the IRA for 5 years before tax-free withdrawals are permitted.

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