When determining what would be best for your finances, you may decide to use a retirement account conversion involving a Roth version. There are tax considerations anytime you do any sort of conversion from one type of retirement account to another.
I received these helpful tips from Jim Wagner:
- Consolidating IRAs can sometimes result in combined deductible and non-deductible accounts, and this can lead to confusion when it comes to figuring out taxes. The unfortunate result might be that the investor would have to pay improperly figured taxes and fees later. Investors should check with an advisor on this
- Investors should pay careful attention to avoid triggering taxable events with rollovers, particularly in taking the money personally and then later rolling it over to an IRA. Retirement monies should be directly transferred from one custodian to another versus going to the investor to transfer. Otherwise, the investor may be subject to penalties.
- The year 2010 presents a wonderful opportunity for many individuals to convert to investments in traditional IRAs to a Roth IRA. Investors that are interested in taking advantage of growing money tax-free for retirement should check in with their advisor. Resulting from the Tax Increase Prevention and Reconciliation Act of 2005 the $100,000 modified gross adjusted income ceiling in converting a traditional IRA to a Roth goes away in 2010. Investors can spread the tax impact over a 2 year period for 2011 and 2012. But the benefits will not be available forever. Plans that are converted to Roth IRAs for clients in 2011 or 2012, or any time in the future after 2010, will get taxed on everything all in that one year.
It is a good idea to consult a trusted financial planning or tax professional to fully understand the tax consequences of any change in your retirement account situation.
Wagner is president and chief executive officer of TAS (Trust Administration Services Corp.) online at www.trustlynk.com