IRA to Roth

[ljwalters]

Client qualifies income wise to contribute to Roth this year (unemployed part of the year). So he decided he wants to roll his IRA about 25,000 into a Roth and pay the taxes. He is about 32 yrs old.

Exactly how much can he recharacterize and can he still do it for 09 tax year.

I'm working in my sleep again. And I have to admit I know Nothing about this.

Linda and Buddy

[Lion EA]

A conversion is based on when it's done (not like a contribution that can be made the following year for the tax year before). He can convert as little or as much as he wants and pay 2010 taxes, or for this year's conversions only, he can choose to include the income from his 2010 conversion evenly on his 2011 and 2012 tax returns instead. The $100,000 ceiling on AGI for conversions is removed.

He can recharacterize his conversion as late as his filing deadline including extensions. So, if he converts now and next tax season his account is falling, you can put him on extension so he has until 15 October 2011 to recharacterize his 2010 conversion back into a traditional IRA so he can convert again (30 days or next tax year, I think) when his account is lower and he'll pay less tax. He can segregate into separate accounts, if one type of his investment is likely to drop while another rises.

Read up on the techniques available on the IRS site and through your trade organizations such as NAEA and NATP. If he expects his tax rate to be lower in 2010 due to unemployment, he may want to pay the taxes for the conversion on his 2010 return. Or, if he's in one of the top two tax brackets expected to rise in 2011.

This is a huge opportunity. Our clients have heard about his; although, sometimes from their barber or mechanic, and will be asking or be doing without telling us. It's a great chance for us to be their heroes, save them some taxes overall, set them up for the future, etc. Read up on this fast.

I don't see some of my clients until this time next year, so I've been talking with them when I have them face to face so they don't do something they don't understand or miss an opportunity. Many of my clients expect their income to remain lower in 2010 with no bonuses. Their IRA accounts are starting to rise again. Talk to your clients sooner rather than later.

[ljwalters]

Thanks Lion, can he convert now for 2009 tax year.

Linda

[Lion EA]

A conversion happens the date it happens, converting all or part of prior contributions. So, now would be a 2010 conversion.

He can make a 2009 contribution now, limited to his situation on his 2009 tax return and 2009 contribution limits.

Some people who don't qualify to make 2009 Roth contributions are making non-deductible traditional IRA contributions for 2009 and then converting all their traditional IRAs into a Roth now that it's 2010 without the AGI limit on conversions.

If you took a tax update course, now would be a good time to review your notes about the changes for 2010 and also 2011/2012 to discuss with your clients.

[ljwalters]

Thanks for the quick answer Lion. Yes I took the up date. because of my post heretic neuralgia I can't even lift the book right now. So I really thank you for your answer. I can deal with the rest later after some much needed bed rest.

Linda and buddy