Archive for the ‘Roth Accounts’ Category

Basis Isolation for Roth Conversions

March 26, 2013
By Kaye A. Thomas

We first posted on the topic of basis isolation for Roth conversions some four years ago, and we continue to receive inquiries on the topic. In response, we’ve upgraded our coverage. Previously we had a single article that described and critiqued the techniques that have been proposed. Now we offer a collection of seven articles dealing with different aspects of the topic.

(more…)

IRS to Issue Guidance on In-Plan Conversions

January 29, 2013

Speaking at a meeting of the Tax Section of the American Bar Association, a Treasury official said there is a plan to issue guidance concerning in-plan Roth conversions. As reported here earlier, the American Taxpayer Relief Act of 2012 expanded the availability of these transactions, which move assets from a traditional 401k or similar account to a designated Roth account within the same plan. The timing for this guidance has not yet been determined but the goal is to have it out by mid-year.

ATRA Expands Roth Conversions

January 3, 2013

Our book Go Roth! lists eight ways the availability of Roth retirement accounts has increased since 2005. The American Taxpayer Relief Act of 2012 (“ATRA”) adds another. Beginning in 2013, if permitted by your employer’s plan, you can convert an existing 401k, 403b or 457b account to a Roth account, even if you aren’t eligible to take a distribution.

(more…)

Roth Conversions Ahead of 2013 Tax Increases

September 20, 2012
By Kaye A. Thomas

High-income individuals have special reasons to consider Roth conversions before the end of 2012. They can benefit in two ways:

  • Scheduled increases in income tax rates could make it more expensive to convert to a Roth after 2012.
  • These same increases, together with other increases targeting investment income, could significantly enhance the post-conversion benefits.

This post is an excerpt from the new edition of our book Go Roth!, which is now available. Click here for details.

(more…)

2010 Roth Conversions Prompt Erroneous Notices

June 19, 2012

Remember 2010? That was the year many people took advantage of the opportunity to convert a traditional retirement account to a Roth with a delayed tax cost. As reported by Amy Feldman for Reuters, it turns out that IRS computers didn’t get the message in all cases. Due to a glitch in the way they talked to one or more  electronic filing software systems, they aren’t connecting the dots on some of the returns: they see the money coming out of the traditional account, but not the Roth conversion that allows a delay in reporting that income. Result: a message from the IRS saying you owe additional taxes on your 2010 return. No need to panic if you receive this unwelcome message. Just make sure you respond promptly, enclosing a copy of the Form 8606 that was part of your 2010 return (or have your tax pro do this for you).

Good reading: If you like Fairmark.com, you’ll also like Amy Feldman’s twice-monthly tax column for Reuters.

A Mighty Big Teaspoon of Roth

May 15, 2012

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.

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…)

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…)

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…)

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…)