Roth IRA Conversions

Google the words "2010 Roth IRA Conversion" and you'll see tens of thousands of web pages, in addition to current news articles by just about every publication from the Wall Street Journal to the Cleveland Jewish News. With so much information already out there, you might wonder why we are bothering to write about this topic. The answer is simple. You know and trust us.

There are reasons both for and against doing a Roth IRA conversion, and specific situations for which a conversion works better than others. This opportunity is certainly not a one-size-fits-all tax savings solution. On the other hand, a recent survey by Fidelity Investments indicates only 7% of eligible taxpayers are planning to convert to a Roth IRA in 2010. We feel this low number represents too many missed opportunities, so we want you to know we are here to assist you with your consideration of whether to convert.

What circumstances make it more likely that a Roth IRA conversion makes sense for you? Although not a complete list, here are the primary situations a conversion will benefit (you don't need to meet all of these "criteria"):

  • You can pay the tax on the conversion from funds other than your IRA.
  • You are in a lower tax bracket now than you anticipate being in in the future (whether the reason for the higher bracket in the future is more income or changes in the tax brackets by the government.
  • You don't anticipate needing the money in your IRA to live off of in retirement, and you want to leave some or all of the IRA to your kids or grandkids.

Also keep in mind you don't need to convert all your retirement savings to a Roth IRA, and just like you diversify your investment portfolio, it may make sense to "diversify your tax portfolio" since you don't know what your tax brackets will be in retirement as compared to currently. Finally, if you do the Roth IRA conversion in 2010 and then something about your situation changes, you have until October 15, 2011, yo undo the conversion and owe no tax.

Don't just read the hypothetical examples of a Roth IRA conversion in the personal finance magazines and wonder if this opportunity is right for you. Contact us at Willis & Jurasek so we can discuss your specific situation and advise you personally.