By the Numbers

Waiver in 2010 of Limitation on Conversion of Traditional IRA to Roth IRA

By Juan Cocuy

The strategy behind converting a traditional IRA to a Roth IRA is that a Roth IRA is tax exempt when you eventually withdraw it upon normal retirement. The down side is that in the year of conversion, you have to pay the taxes. Under current law, only those with adjusted gross income (AGI) of $100,000 or less, whether married or single can convert a traditional IRA to a Roth IRA.  Under normal circumstances, a conversion from a traditional IRA to a Roth IRA might be considered if you have other losses to offset the taxable income from the conversion. 

In the year 2010, however, the income limitation for conversion will be waived for one year only. In addition, taxes on the conversion will not have to be paid in 2010. You will be able to pay half your tax bill on the 2010 conversion in 2011 and half in 2012. With proper planning you could spread out the pain of paying the taxes.  Congress, unfortunately, has time to close this loophole but they are kind of busy right now, (with healthcare reform and all), so it’s highly unlikely that they will.

Please note that there will still be AGI limits on contributing to a Roth IRA of $110,000 for filing single and $160,000 for married filing jointly. If you do not qualify to make Roth IRA or traditional (before tax) IRA contributions, any taxpayer with earned income can make (after tax) nondeductible traditional IRA contributions.  Thus, even if you don’t have an IRA presently, you could make nondeductible contributions in 2009, and convert them to a Roth IRA in 2010.

These issues can be very complex so please don’t hesitate to call our office (Cocuy & Burns) to discuss your situation or set up an appointment with one of our professionals to see if we may be of any assistance.  Our phone number is 561-793-1927.

Juan Cocuy, CPA

Also contributing Kathleen Booth CPA