Friday, October 9, 2009

A Special Tax Break Coming for High-Income IRA Owners

If your household’s modified adjusted gross income (MAGI) is above $100,000, you can’t convert your IRA to a Roth IRA. That means you miss out on all the great benefits Roths offer, such as tax-free buildup, tax-free withdrawals, and no minimum distribution requirements. But come January 1, 2010, high-income earners who were previously unable to convert their IRAs into Roth IRAs will be allowed to do so thanks to the Pension Protection Act of 2006. When you convert from a traditional IRA to a Roth IRA, you’ll owe tax on the amount converted. However, the revised rules give you a one-shot opportunity to spread the additional taxes out over 2010, 2011 and 2012. Consequently, you could put off the final tax payment until 2013. When you look all the red ink flowing out of Washington these days, this could very well be a ploy to bring in some quick cash. After all, money left in traditional IRA might not get taxed for decades! Even so, no matter what the Treasury Department’s motives are, this is a heck of a deal that’s worth checking out. Best wishes, George

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