Raleigh, North Carolina (PressExposure) April 01, 2010 -- FOR IMMEDIATE RELEASE
Media Contact: Brian Van Norman 919.232.5008 brian@articulon.com
New Rules for IRA Conversions Financial Adviser Dale Merritt Explains 2010 Changes
Dale Merritt, president of Raleigh-based Merritt Wealth Strategies (www.merrittwealth.com), discusses the new rules for converting Traditional IRAs to Roth IRAs. These changes are part of a $70 billion tax cut provision that former President George W. Bush signed in 2006.
Overview of Traditional IRAs and Roth IRAs:
With both Roth and Traditional IRAs, individuals must have "earned income" to be able to contribute. Taxpayers under age 50 can contribute $5,000 per year. Those over 50 are allowed a "catch up contribution" and can give $6,000 per year to their account.
A Traditional IRA is a savings account set up using "pre-tax" money, meaning that an individual does not pay tax on their earned income being deposited. Individuals are taxed at the time they withdraw money from the IRA. The goal with the traditional IRA is to compound and grow the money as much as it can between the account set-up date and when individuals are ready to start taking distributions. At age 70 ½, individuals are obligated by law to begin taking "required minimum distributions," and have to stop contributing to the account.
A Roth IRAs uses "after-tax" money. This means that tax is paid on the earned income prior to a deposit into the account. When individuals begin withdrawing funds, they do not pay tax on the qualified money. Unlike Traditional IRAs, there is no age limit on contributions to a Roth IRA.
"The new IRA rules can have long-term advantages to some individuals," says Merritt. "Before making any decisions, you should consult an adviser or CPA to see if converting their IRA is beneficial."
Original Roth IRA Conversion Laws:
⢠Individuals were permitted to convert a traditional IRA to a Roth IRA, with the following conditions to consider:
- Income limits determined eligibility to convert - tax payers with an adjusted gross income of more than $100,000 (single or married) were not eligible to make the conversion. Also, taxpayers who earned $110,000 or more ($160,000 for married joint filers) were not eligible to contribute to a Roth IRA.
- Paying taxes on converted money - for traditional IRAs, money could be added to an account on a pre-tax (tax deductible) or an after-tax basis. To convert from a traditional IRA to a Roth IRA, individuals had to pay the federal income taxes on any pre-tax contributions they had made, and on the amount the account had grown in value.
2010 Provisions:
⢠Taxpayers with modified adjusted gross income of more than $100,000 are now eligible to convert a traditional IRA to a Roth IRA. Merritt notes that there are still some eligibility limits:
- Taxpayers whose filing status is married filing jointly with a modified adjusted gross income of $177,000 or greater are not eligible to contribute to a Roth IRA. - For those with a filing status of single, head of household, or married filing separately and not living with their spouse at all in 2010, if their modified AGI is $120,000 or greater. - If a taxpayer's filing status is married filing separately and they lived with their spouse at any time during the year, they can not make a contribution if their modified AGI is $10,000 or more.
⢠The income taxes due on the 2010 conversion can be divided over two years (2011 and 2012), helping to lower the tax burden. Conversions in years after 2010 will be included in income during the tax year the conversion if finalized.
"What these provisions do is give higher income taxpayers the opportunity to pay taxes now and have tax-free income in the future, after giving their money a chance to compound for several years," adds Merritt. "You can really argue both sides of the equation when it comes to converting to a Roth IRA; the key is to not rush into the decision and to take time to speak to an investment adviser." Information on IRS rules for Roth IRAs can be found at http://www.irs.gov/publications/p590/ch02.html.
"Securities and Investment Advisory Services offered through FSC Securities Corporation. Member FINRA/SIPC and a registered investment adviser. Merritt Wealth Strategies is not affiliated with FSC Securities Corporation or registered as a broker-dealer or investment adviser. The views expressed are not necessarily the opinion of FSC Securities Corporation."
* The views expressed in this newsletter are not necessarily the opinion of SagePoint Financial Inc. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results.
* If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted Traditional IRA contributions and on all earnings. A conversion may place you in a higher tax bracket than you are in now. Because Roth IRA conversions may not be appropriate for all investors and individual situations vary, we suggest that you discuss tax issues with a qualified tax adviser.
* A Roth IRA distribution is qualified if you've had the account for at least five years and the distribution is made after you've reached 59 ½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses. Distributions made prior to age 59 ½ may be subject to federal income tax penalty.
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* Media contact Brian Van Norman and his related contact information are not affiliated with FSC Securities Corporation.