Sheila Edelstein, CPA

1200 Harger Rd – Ste 209
Oak Brook, Illinois 60523
Voice 630.574.0840
Fax 630.572.1432

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There is a lot of information floating around about converting a Traditional IRA to a ROTH IRA in 2010. Is this something everyone should do? What are the tax consequences?

For 2010 only, the IRS will allow conversion of funds in Traditional IRAs, SIMPLE and SEP accounts to a ROTH IRA. The benefit of a ROTH IRA is simply that you will never pay tax on funds withdrawn from a ROTH account after a 5 year waiting period and you are over age 59-1/2. Normally, the conversion cannot be done if modified adjusted gross income exceeds $100,000 for the year of conversion or if you file married filing separate. For 2010 only, these exclutions do not apply.

The COST for the conversion is that the amount converted is includible in income in the year converted, or, if elected, the income can be deferred to 2011 and 2012, with one-half the income added to your other income in both 2011 and 2012.

Remember, tax rates are expected to go up in 2011. You could trigger a 10% penalty if you are under age 59-1/2 at date of conversion and use some of the Traditional IRA funds to pay the tax, rather than rolling over all the money moved out of the Traditional IRA. IS THIS IRA CONVERSION GOOD FOR EVERYONE? Absolutely not! There are many factors to consider, such as your tax bracket and the length of time your funds will remain in the ROTH IRA. Please call to discuss your situation before making this decision.

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