To Convert or Not to Convert - That is The Question
We have been discussing the importance of 2010 Roth
Conversion Planning for some time.
Ed Slott will cover NEW 2010 Roth Conversion Planning during our 2-Day IRA Workshop, Instant IRA Success, on
November 5 - 6 at the Biltmore Resort and Spa in Phoenix, AZ.
It is important to know the basic reasons why individuals should
consider or NOT consider Roth conversions.
Reasons to Consider Conversions:
- If your client's income tax bracket may be the same or higher
- If your client has the ability to report lower income in any
given year, converting in that year could lower his or her
income tax on the conversion.
- If your client does not need the IRA funds to live on and can
take advantage of the suspension of the minimum distribution
rules for 2009.
- If your client has the ability to make contributions even after
age 70 1/2 (if there is eligible earned compensation).
- If your client's beneficiaries receive an income-tax-free
Reasons NOT to Consider Conversions:
- If your client will have an immediate need for the money.
- If your client expects to have a lower tax bracket in
- If your client has an aversion to paying the income tax up
front and does not trust the government to keep the
- If your client does not have the liquidity to pay the tax on
the conversion from non-retirement assets.
- If your client has named a charity, which is exempt from
income tax, as the beneficiary of the IRA. No income tax will be due at the death of the client.
NEW IRS RULING ALLOWS RELIEF ON
UNWANTED 2009 RMDS
RMDs were waived for 2009, but the relief came late in 2008
causing some people to take withdrawals that were not required.
IRS Notice 2009-82 provides retroactive relief for IRA owners and
spouse beneficiaries by allowing them to rollover (put back)
2009 RMDs received earlier this year.
IRS is waiving the 60-day rollover deadline to permit any IRA
owner, plan participant, or their spouse beneficiary to undo
the 2009 RMD, regardless of when in 2009 they took the
The deadline has been extended to November 30, 2009 or 60 days from the date the funds were received, whichever is later. This means your client who received an RMD (which was not required) in January or March, for example, now has the option of rolling those funds back into a tax-deferred account.
This relief does NOT apply to non-spouse beneficaries who are
prohibited by the tax code from ever doing a rollover.
CAUTION: The one rollover per year rule is still in effect.
Explanations of the rules that govern IRAs are usually provided
in Ed Slott's IRA Advisor Newsletter.
How is Schedule C income treated relative to the Roth
conversion? I think I heard that it can somehow not be
Schedule C of your personal income tax return is
self-employed income. That income or loss will be part of
your modified adjusted gross income (MAGI). It cannot be
ignored. In 2009, if your MAGI exceeds $100,000, and if
you are married and filing separately, you will not qualify
for a Roth IRA conversion. In 2010, both of these
restrictions will be permanently eliminated.