The expansion of Roth accounts marches on as the Thrift Savings Plan (affectionately known as the TSP), serving some 3.3 million employees of the federal government, announces it has completed the work to make Roth accounts available in this plan. Some agencies and services will need to reconfigure their payroll software before they can make these accounts available to their employees, but the TSP is ready when they are.
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A Mighty Big Teaspoon of Roth
May 15, 2012
May 15, 2012
What’s New in IRAs? Not Much
January 3, 2012
By Kaye A. Thomas
The IRS came out with its annual edition of Publication 590, Individual Retirement Arrangements (IRAs), earlier than usual this year (click here for PDF). Most likely that’s because so few revisions were needed from the previous year. Sections describing what’s new for 2011, and for 2012, offer little more than a mention of the new figures for items that are adjusted annually for inflation. (These figures are available in our Reference Room.)
Taxpayers and return preparers should take note of one item affecting returs for 2011 and 2012, however. A special rule for Roth conversions in 2010 allowed the income from the conversion to be reported half in 2011 and half in 2012. You could also choose to report the conversion income on your 2010 return, but if you didn’t make that choice, you begin to pay the piper on your 2011 income tax return.
This rule applied only for Roth conversions that took place in 2010. If you did a Roth conversion in 2011, you have to report the income on your 2011 tax return.
January 3, 2012
By Kaye A. Thomas
The IRS came out with its annual edition of Publication 590, Individual Retirement Arrangements (IRAs), earlier than usual this year (click here for PDF). Most likely that’s because so few revisions were needed from the previous year. Sections describing what’s new for 2011, and for 2012, offer little more than a mention of the new figures for items that are adjusted annually for inflation. (These figures are available in our Reference Room.)
Taxpayers and return preparers should take note of one item affecting returs for 2011 and 2012, however. A special rule for Roth conversions in 2010 allowed the income from the conversion to be reported half in 2011 and half in 2012. You could also choose to report the conversion income on your 2010 return, but if you didn’t make that choice, you begin to pay the piper on your 2011 income tax return.
This rule applied only for Roth conversions that took place in 2010. If you did a Roth conversion in 2011, you have to report the income on your 2011 tax return.
Managing Income from a Roth Conversion
January 10, 2011
People who did Roth conversions in 2010 now face the issue of how to manage the resulting income. With the Bush tax cuts having been extended through 2012, many will want to take advantage of a special rule, which applies only to 2010 conversions, allowing half the income to be taxed on their 2011 return and half on their 2012 return. This isn’t the optimal approach for all people, however. If you did a Roth conversion in 2010 and don’t want the income to be taxed in this manner, there are four ways to get a different result. (more…)
January 10, 2011
People who did Roth conversions in 2010 now face the issue of how to manage the resulting income. With the Bush tax cuts having been extended through 2012, many will want to take advantage of a special rule, which applies only to 2010 conversions, allowing half the income to be taxed on their 2011 return and half on their 2012 return. This isn’t the optimal approach for all people, however. If you did a Roth conversion in 2010 and don’t want the income to be taxed in this manner, there are four ways to get a different result. (more…)
Segregate Assets After Roth Conversion?
December 11, 2010
On various occasions we’ve discussed the benefits of segregating different assets in separate Roth IRAs when doing a conversion. A reader asks whether it would be possible to achieve the same benefit, or at least a similar one, with assets that were initially converted to a single Roth IRA that was subsequently divided. (more…)
December 11, 2010
On various occasions we’ve discussed the benefits of segregating different assets in separate Roth IRAs when doing a conversion. A reader asks whether it would be possible to achieve the same benefit, or at least a similar one, with assets that were initially converted to a single Roth IRA that was subsequently divided. (more…)
The Tax Deal: Rethink Roth Conversions?
December 9, 2010
It’s going to be quite a scramble to figure out what planning moves make sense in light of a suddenly changing tax landscape. One item sure to draw the attention of many is Roth conversions. Will they become more attractive? Or possibly, for some people, less attractive? (more…)
December 9, 2010
It’s going to be quite a scramble to figure out what planning moves make sense in light of a suddenly changing tax landscape. One item sure to draw the attention of many is Roth conversions. Will they become more attractive? Or possibly, for some people, less attractive? (more…)
Sophisticated Roth Conversion Planning
December 2, 2010
Suppose you could make a double or nothing bet with your retirement account. That’s not likely to make a lot of sense, given the possibility of losing the bet. But suppose you could bet half your retirement account on some proposition, and bet the other half on the opposite proposition. Does that sound like a pointless exercise? An intriguing article by UNC law professor Gregg Polsky explains how such an arrangement could be used to cut the tax cost of a Roth conversion. (more…)
December 2, 2010
Suppose you could make a double or nothing bet with your retirement account. That’s not likely to make a lot of sense, given the possibility of losing the bet. But suppose you could bet half your retirement account on some proposition, and bet the other half on the opposite proposition. Does that sound like a pointless exercise? An intriguing article by UNC law professor Gregg Polsky explains how such an arrangement could be used to cut the tax cost of a Roth conversion. (more…)
New Guidance on In-Plan Roth Conversions
November 27, 2010
The IRS has released a 12-page notice (PDF) providing guidance in question-and-answer form for employers that want to offer their 401k or 403b participants the opportunity to move money from a regular account to a designated Roth account within the same plan. This guidance was on a fast track so that employers could make this opportunity available before the end of 2010 for those participants who want to take advantage of the special rule, available only this year, to delay the reporting of income from a conversion — splitting it between 2011 and 2012 instead of reporting it as 2010 income. (more…)
November 27, 2010
The IRS has released a 12-page notice (PDF) providing guidance in question-and-answer form for employers that want to offer their 401k or 403b participants the opportunity to move money from a regular account to a designated Roth account within the same plan. This guidance was on a fast track so that employers could make this opportunity available before the end of 2010 for those participants who want to take advantage of the special rule, available only this year, to delay the reporting of income from a conversion — splitting it between 2011 and 2012 instead of reporting it as 2010 income. (more…)
Not So Fast on Roth Conversion Within 401k
October 21, 2010
Speaking at a conference, a Treasury official said plan sponsors should wait until official guidance is published before implementing the recent law permitting Roth conversions to occur within a 401k plan. Tax Notes reports that the official acknowledged the need for the Treasury to act quickly on this issue. (more…)
October 21, 2010
Speaking at a conference, a Treasury official said plan sponsors should wait until official guidance is published before implementing the recent law permitting Roth conversions to occur within a 401k plan. Tax Notes reports that the official acknowledged the need for the Treasury to act quickly on this issue. (more…)
A Deadline You Probably Don’t Have to Meet
October 2, 2010
October 15 is the deadline for undoing a 2009 Roth conversion. You’d want to take this action if you’ve learned your conversion didn’t qualify, perhaps because your income was too high that year. (The income limitation was eliminated as of 2010.) You might consider it if your tax situation changed to make it unwise, or if your financial situation makes it difficult for you to do without the tax dollars you had to pay on the conversion.
The most frequent reason for undoing a Roth conversion, though, is a loss of value in the account after the conversion. Relatively few people are in that situation just now: the stock market is higher now than it was at nearly any point in 2009 — and roughly 70% higher than it was at the low point in March of that year. If you made some unfortunate investment choices that leave you with a diminished balance since the date of your conversion you have less than two weeks to evaluate your choices and take action if needed. Most people who converted last year will be able to stick with a decision that worked out well.
October 2, 2010
October 15 is the deadline for undoing a 2009 Roth conversion. You’d want to take this action if you’ve learned your conversion didn’t qualify, perhaps because your income was too high that year. (The income limitation was eliminated as of 2010.) You might consider it if your tax situation changed to make it unwise, or if your financial situation makes it difficult for you to do without the tax dollars you had to pay on the conversion.
The most frequent reason for undoing a Roth conversion, though, is a loss of value in the account after the conversion. Relatively few people are in that situation just now: the stock market is higher now than it was at nearly any point in 2009 — and roughly 70% higher than it was at the low point in March of that year. If you made some unfortunate investment choices that leave you with a diminished balance since the date of your conversion you have less than two weeks to evaluate your choices and take action if needed. Most people who converted last year will be able to stick with a decision that worked out well.
Roth Conversions Within Employer Plans
September 24, 2010
As of September 27, 2010, employees with 401k or 403b accounts can do a Roth conversion without taking money out of the plan — but only if the employer takes steps necessary to permit these conversions. Here are questions and answers about these provisions. (more…)
September 24, 2010
As of September 27, 2010, employees with 401k or 403b accounts can do a Roth conversion without taking money out of the plan — but only if the employer takes steps necessary to permit these conversions. Here are questions and answers about these provisions. (more…)
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