What About 2010 Roth Conversions
The ROTH IRA has been around for many years. For many farmers and others that have income over $100,000 annually, they have either been unable to contribute to a ROTH IRA or convert a regular IRA to a ROTH IRA.
Starting in 2010, these rules are changing for ROTH IRA’s. Here are 6 things that you should know about 2010 ROTH IRA conversions:
1. It is for adjusted gross incomes over $100,000 – Whether you are filing as an individual or married filing joint, the adjusted gross income limitation of $100,000 will become nonexistent for the Roth IRA conversions of 2010. For higher income earners, this is a prime opportunity to convert money into the Roth IRA to allow your money to grow tax-free for retirement or to pass onto your heirs.
2. You don’t have to wait until 2010 – For people who earn less than $100,000 they can do the conversion this year. With the market being down, this may be a great time to convert (in hind site, doing it in March would have been the best time). If you convert too soon, you can always reconvert back to a regular IRA by October 15 of the year you convert.
3. 2010 is the year, but not the year the tax is due – While 2010 is the actual year that you will be able to convert, the income to be claimed can be deferred until 2011 and 2012. Their is a special provision for 2010 allowing you to report 50% of the conversion in 2011 and 50% in 2012. This normally a great thing to do, but if income tax rates increase substantially in 2011 versus 2010, you may want to elect to pay in full next year. This special conversion option is only available for conversions in 2010. After that date, you will owe the tax on the conversion in the year after conversion.
4. You can save taxes now – Knowing that the event is coming up soon, you should start saving for paying the taxes now. Add some money to your emergency fund to handle the extra taxes due in 2011 and 2012.
5. Convert but can’t contribute – Just because the conversion income limit of $100,000 has been eliminated, this doesn’t mean that the income restrictions for a normal ROTH contribution have been changed. If you are over the phase out limits of the ROTH IRA, you will not be able to contribute new money to a ROTH. You may be able to contribute to a non-deductible IRA and then convert to a ROTH in 2010.
6. Convert traditional IRAs and old 401ks – The 2010 conversion is not limited to just your traditional IRA. If you have old 401k, profit sharing or other types of pension money, you can also convert these to a ROTH.
As with any retirement and tax planning, make sure to review this with your income tax advisor and financial planner to make sure you make the right election. Make your plans for 2010 now.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Comments are closed.