Roth IRA Conversions

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., Woodbury, New York
• Pages: 29-30

29

ROTH IRA

CONVERSIONS

As of 2010 the Tax Increase Prevention and Reconciliation Act of 2005

(TIPRA) permits a conversion from a traditional IRA into a Roth IRA

regardless of the income of the taxpayer. Thus, the modified adjusted

gross income (MAGI) limitation of $100,000 no longer applies.

It should be noted that a required minimum distribution from a tra-

ditional IRA may not be converted into a Roth IRA.

If the conversion occurs in 2010, then the taxpayer may report

50% of the income applicable to the conversion in 2011 and 50% of

the income applicable to the conversion in 2012. Alternatively, the tax-

payer may elect to report the entire income applicable to the conversion

in 2010.

If the conversion occurs after 2010, then the income applicable to

the conversion must be reported in the year of the conversion. The two-

year provision in that case is not available.

Advantages of Roth IRA conversions include:

• Avoiding required minimum distributions while the Roth IRA

owner is alive.

• Reducing the size of the gross estate of the IRA owner to the

extent of the additional federal, state, and local income taxes that is

paid by the IRA owner.

• Selecting a designated beneficiary or designated beneficiaries (in-

cluding trusts) of the Roth IRA that are consistent with the Roth

IRA owner’s estate plan.

• The ability of the Roth IRA owner to take advantage of the

generation- skipping transfer exemption rules by selecting a trust

or trusts for grandchildren as the beneficiary of the Roth IRA.

However, post- death recharacterization issues regarding trustee’s

consent to a recharacterization election should be spelled out in the

trust document if the Roth IRA tanks.