Many tax payers have been unable to take advantage of ROTH IRAs due to the gross income limits that prohibited higher income taxpayers from contributing to a ROTH IRA or converting an existing regular IRA into a ROTH IRA.

2010 Change

For tax years beginning after December 31, 2009, the income limits on who may convert a regular IRA to a ROTH IRA have been eliminated; therefore, all taxpayers can make the IRA conversion.

Conversion Consequences

A consequence of conversion is that the value at the date of conversion is taxable as ordinary income and is normally reported on the tax return for the year when conversion takes place.  For calendar year 2010 alone, taxpayers may elect to either include the income on their 2010 tax returns or include nothing on their 2010 returns and include half of the income on their 2011 and half on their 2012 returns.

ROTH IRA Benefits

Distributions from a ROTH IRA are income tax free if made after the owner reaches age 59 1/2, and has held a ROTH IRA for 5 years.  The IRS Minimum Distribution Rules after age 70 1/2 do not apply to ROTH IRAs during the owner's lifetime.  (Beneficiaries will be subject to the minimum distribution rules.) Significant benefits include the ability to receive tax free distributions in retirement and the ability to further extend the tax free growth of a ROTH IRA as long as distributions are not needed. Many individuals will be considering converting some or all of their existing IRAs into ROTH accounts in 2010 when the income limit is eliminated.

For more information, please contact Olena Lukashchuk at 215-564-1900.

Back to News Archive