Archive for the ‘Roth Accounts’ Category

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.


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, 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…)

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…)

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…)

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.

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