Roth IRA conversion


G

Gil Faver

A blurb from one of my brokers has the following statement:


"The Tax Increase Prevention and Reconciliation Act eliminates the modified
adjusted gross income (MAGI) restriction in 2010 (currently $100,000) for
Roth IRA conversion eligibility."


Am I correct in reading that this has no effect until 2010? Am I correct in
reading that this has eliminated ANY income restriction on converting to a
Roth IRA?

If so, what is the cost benefit analysis to converting maybe $200k to a Roth
IRA, for a person with several hundred thousand in AGI?

thanks.
 
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J

joetaxpayer

Gil said:
A blurb from one of my brokers has the following statement:

"The Tax Increase Prevention and Reconciliation Act eliminates the modified
adjusted gross income (MAGI) restriction in 2010 (currently $100,000) for
Roth IRA conversion eligibility."

Am I correct in reading that this has no effect until 2010? Am I correct in
reading that this has eliminated ANY income restriction on converting to a
Roth IRA?
If so, what is the cost benefit analysis to converting maybe $200k to a Roth
IRA, for a person with several hundred thousand in AGI?
Yes 2010, unless they change their mind.
An AGI of 'several hundred thousand' put one in the highest current
brackets, 33 or 35%. Likely, no benefit to conversion to a Roth.
The largest benefits of Roth use or conversion to Roth have to do with
taking income at a lower rate vs deferring at a higher rate. A typical
earner will retire in a lower tax bracket than while they worked.
The math shows that one can amass over $2 million and remain in the 15%
bracket at retirement.

There is a social security tax anomaly to be aware of, where one hits a
phantom rate on their SS benefits, as one half their SS benefit plus
their taxable income (as from IRA/401(k)) passes $32K for a couple.
This creates a pretty tight range of people impacted who can still avoid
this anomaly.

The conversion works well for a retiree who can use it to 'top off'
their current bracket each year so RMDs don't force them into a higher
bracket later on. Or, to execute a similar strategy while working if
one's income is variable, or during times of unemployment.

JOE
 

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