Does rushing taxes ever make sense? Maybe…

Under a special provision from President Obama’s 2009 financial relief package, anyone who owns a traditional IRA can choose to convert it to a Roth IRA in 2010.

Why would you consider this?

Any money in a Roth, unlike a traditional IRA, is withdrawn without paying taxes whether it is you who withdraws the money or your heirs…

You are also not required to make mandatory withdrawals as you are with a traditional IRA…

BUT, there is a price tag.

Since Roth’s are funded with after-tax money, when you convert your traditional IRA, you will need to pay income tax on the whole amount.

So why 2010?

There are two relief provisions in the law:

  1. There is no income limit on converting. Generally, there are income restrictions on opening, funding or converting into a Roth.
  2. You can spread out the income tax from converting over two tax years (2011 and 2012). This is only allowed for a 2010 conversion.

So does it make sense for you to convert?

Generally speaking, the younger you are the greater the advantage…

However, there are many cases when older people could benefit greatly (and their beneficiaries) from converting now.

There are enough moving parts in this calculation that it is worth consulting your retirement planner to look at all the possibilities. If you’re considering contacting a professional to help plan your retirement but don’t know who to call, let us know and we’re more than happy to make a recommendation for you.

All of us here at CoverLink wish you a profitable year.