2010 Roth Conversions | Ed Slott and Company, LLC

2010 Roth Conversions

I understand, that in 2010, the eligibility requirements for converting to a Roth IRA go away due to the EGTRAA provisions. Do you need to convert all of your IRA's or pick and choose which ones to convert. I seem to recall that it was an all or nothing deal.

No you can convert as much as you want, or as many as you want. Sometimes annuities cannot be split apart, and you may have to convert the whole amount, unless it is out of the surrender charge period. Some annuities have no surrender charges; some as short as 4 years.

What is "all or nothing" is the election out of the two year tax deferral provision for 2010 conversions only. In other words, if you make more than one conversion in 2010 and do nothing, you have elected by default to have 50% of the income taxed in 2011 and 50% in 2012. If you opt out, then the conversions are taxable for 2010. You cannot choose to have some conversions taxed in 2010 and others deferred to the later years. Perhaps that is what you recall hearing. Based on the above, there are extra planning decisions to be made for 2010 conversions, expecially for those who plan on converting a modest amount over a period of years. Those people would probably opt out of the deferral so they could use some of their 2010 tax bracket. Recharacterization options also are affected since the current extended due date deadline is AFTER all income and deductions are known. But the deadline of Oct 2011 for 2010 conversions is prior to knowing 2011 income in total and any 2010 income, ie the recharacterization benefit is much less clear.
 

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