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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.
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.
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.
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.
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.
Go Roth! 2012 Now Available
September 20, 2012
The new edition of Go Roth!, our book on Roth IRAs and other Roth accounts (such as Roth 401k) is now available. Click here for details.
September 20, 2012
The new edition of Go Roth!, our book on Roth IRAs and other Roth accounts (such as Roth 401k) is now available. Click here for details.
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.
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 Fairmark.com, you’ll also like Amy Feldman’s twice-monthly tax column for Reuters.
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.
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.
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…)
Our books
| That Thing Rich People Do |
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The fastest, easiest way to learn the principles of investing. |
| Go Roth! | |
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Our complete guide to Roth IRAs and Roth accounts in employer plans: choosing, creating, building and using these accounts. |
| Consider Your Options | |
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A plain-language guide for people who receive stock options or other forms of equity compensation. |
| Equity Compensation Strategies | |
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A text for financial advisors and other professionals who offer advice on how to handle equity compensation including stock options. |
| Capital Gains, Minimal Taxes | |
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Tax rules and strategies for people who buy, own and sell stocks, mutual funds and stock options. |