Why 2010 is the Year of the ROTH IRA Conversion

A never before seen financial opportunity is occurring now that the ball has dropped in Times Square, and you need to be prepared to take advantage. Beginning January 1, 2010, Congress has relaxed the rules for individuals converting from a Traditional IRA to a Roth IRA, eliminating income limits and restrictions.

Here are a few reasons to convert to a Roth IRA:

The suspension of minimum distribution rules at age 70 ½ has provided considerable advantages to the Roth IRA holder, including additional tax-free compounded growth.
When a Roth election is made, taxpayers benefit from paying income tax before estate tax compared to the income tax deduction obtained when a traditional IRA is subjected to estate tax.
Future distributions to beneficiaries are generally tax-free.
Taxpayers who can pay the income tax on the IRA from non-IRA funds benefit greatly from the Roth IRA due to the ability to enjoy greater tax-free yields.
Taxpayers who need to utilize IRA assets to fund their Unified Credit bypass trust should strongly consider making a Roth IRA election for that portion of their overall IRA funds.
Because federal tax brackets are more favorable for married couples, Roth IRA distributions shouldn’t cause an increase in tax rates for the surviving spouse when one spouse is deceased because those distributions are now tax-free. This is a very important pre-mortem planning opportunity presented to us.

However, individuals should be aware of this warning: The calculation in determining the taxable portion of a Roth conversion takes into account all accounts with IRA in the name, and the “basis” in all accounts with IRA in the name, regardless of the source of the monies in the account. Therefore, before you convert anything to a Roth IRA, be sure to calculate the numbers with an expert first. This trap could be potentially shocking to those unaware and with prior rollover accounts such as former 401(k) plan monies. Beware, the benefit obtained is not always an easy path!