You May Want to Unwind Your Roth Conversion
Many farmers elected in 2010 to convert their regular IRA to a Roth and either pay the tax in 2010 or spread it out over 2011 and 2012. As long as the farmer timely filed their income tax return or got an extension to October 15, 2011, they have until that date to “unwind” the conversion and treat it as if it never happened.
The primary reason for considering this is the drop in stock prices from 2010 until now. By unwinding the conversion, the farmer may be able to then redo the conversion and save substantial tax this year.
For example, let’s assume the farmer had $500,000 in his IRA on June 1, 2010 when he converted it into a ROTH. Now, let’s assume the value of the ROTH is only $300,000. By unwinding the ROTH conversion, the farmer does not pay tax on the difference between the $500,000 last June and the $300,000 value now. At the highest tax bracket including applicable state income taxes, the total tax savings could approach $100,000.
Remember, you only have until October 17, 2011 to unwind this conversion
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.
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