subject: Conversions To A Roth Ira [print this page] The fund that you roll over from a traditional IRA into a Roth IRA are taxable in the year of the rollover. For example, if you rollover $50,000 in 2009. Even though a conversion to a Roth IRA causes you to pay current taxes on the amount rolled over, the amount will then grow tax-free in the Roth IRA.
Roth IRA rollovers work best if you have funds outside the IRA to use to pay taxes on the rollover. For example, a rollover of $50,000 into a Roth IRA may result in $10,000 in income taxes. It's best to rollover the entire $50,000 and pay the taxes with $10,000 that you have outside your IRA. If you need to take $10,000 from your traditional IRA to pay the taxes, you wind up with only $40,000 left to rollover into the roth IRA.
A traditional IRA can be converted to a Roth IRA in one of three ways:
Rollover: Assets from a traditional IRA can be contributed (rolled over) to a Roth IRA within 60 days after their distribution.
Trustee-to-trustee transfer: The financial institution holding the traditional IRA assets transfers those assets to a Roth IRA. In this case, the transfer should be simpler because it occurs within the same financial institution.
Here are a few upcoming changes for conversions:
Effective after December 31, 2007, direct rollovers from the tax-qualified retirement plans to Roth IRAs will be permitted. These rollovers are subject to the same rules that apply to conversions from a traditional IRA to a Roth IRA.
Effective for tax years beginning after December 31, 2009, the requirement that a taxpayer's gross income no exceed $100,000 to be eligible to convert a non-Roth IRA to a Roth IRA will be eliminated.
A special rule has been established for rollovers to Roth IRAs in 2010. Amounts rolled over into a Roth IRA in 2010 aren't included in your income in 2010; instead, 50 percent of the amount is included in your income in 2011 and 50 percent in 2012. That's quite a deal for the year 2010 because none of the rollover will be included in your income. This deal is something you should seriously consider.
by: Annuity Zing
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