Jenna P., Vice President, Operations

Jenna P., Vice President, Operations

Beginning January 2010, the Adjusted Gross Income (AGI) limit and filing status requirements to convert a Traditional IRA to a Roth IRA have been eliminated. Prior to 2010, consumers with an AGI above $100,000 did not have this option.  Now you do.  By converting this year, you can defer and break up the tax burden, paying half in 2011 and the other half in 2012.
So, what’s the difference?
Roth IRA funds can be withdrawn tax free at age 59½ or older if the funds have been in the account for at least 5 years. With a Traditional IRA, however, there are required minimum distributions starting at age 70½ and amounts withdrawn are taxable at the time of distribution.
Taxable Event.
Conversion from a Traditional to a Roth IRA is a taxable event. Contributions and earnings that have not already been taxed, will be taxed at your regular income tax rate. If you decide to convert this year and defer taxes to the following year(s), you should consider if your tax rate may be higher in 2011 and 2012.  You may not want to convert if you don’t have the money available to pay the taxes now.  If you pay the taxes with money from the Traditional IRA, you may lessen the value of the conversion.
Visit the IRS website for complete details. Pacific Service CU is not a qualified tax expert and does not provide tax advice.  We encourage you to contact your tax advisor for details and to see if the 2010 Roth conversion options can benefit you.