Tax Saving Opportunity
- posted by KLR
Why is the KLR director of the tax-exempt not-for-profit team blogging about taxes? Because I hate paying taxes so much I had to make my career in the tax-exempt area. But in 2010 we individuals have an unusual opportunity to save some taxes for ourselves and our heirs, and it got my attention, so I thought I would share the info with you.
Starting Jan. 1, 2010, all U.S. citizens will have an equal ability to convert traditional Individual Retirement Accounts to Roth IRAs. Currently only taxpayers with modified gross-adjusted incomes under $100,000 are allowed to convert to Roth IRAs--the same limit applies to both singles and couples.
As you know, in a traditional IRA, contributions are tax deductible, but all withdrawals are eventually taxed as ordinary income. While there is no deduction for contributing to a Roth, the contributions are not taxed when they're withdrawn.
Next year, the government is giving us all the opportunity to convert funds that are in our traditional pre-tax IRAs and roll the funds into a Roth IRA. Of course, when you roll the money out of your traditional IRA it will be taxed at the regular 2009 personal income tax rates. But once this money is in the Roth IRA, it is free of tax for you or your heirs who may inherit the Roth IRA account. And, I think it is a safe assumption that income tax rates are going to be higher in the future than they are now. So a Roth conversion may make sense for you.
Although this conversion rule goes into affect in 2010 the old restrictions on who can contribute to a Roth IRA will continue. So if you like the concept of a Roth IRA but your adjusted gross income is high, conversion may be the only way you can get some investment money into the tax-favored Roth IRA vehicle.
Another feature of the Roth IRA is that you are not required to take minimum distributions at age 70½ from a Roth IRA that you are required to take from your regular IRA. This means that if you are so inclined, you can leave money to your heirs in a Roth IRA account. And, the money your heirs receive in the Roth IRA account is not taxable but the money they inherit from your regular IRA account is fully taxable to them. Even worse, if you leave a great deal to your heirs, they may face both the estate tax and the income tax on regular IRA inheritance funds.
Roths allow a non-spouse beneficiary to take out the distributions either by the end of the year of the fifth anniversary of the death of the first Roth owner or the beneficiary can take the money out over their life expectancy. This allows the money to come out tax free and compound tax free for the life of your heir.
One more feature of the traditional IRA to Roth conversion. The government says you only have to report the income and pay the tax on the traditional IRA in three equal amounts in 2010, 2011 and 2012.
So, what do you think about this? How attractive is this? What are some key differences that people should keep in mind as they consider this? Who would benefit from such a conversion?
Contact the KLR Wealth Management Services to see if a Roth IRA conversion would benefit your family.
By. Frank Monti, CPA
Not For Profit Group
Starting Jan. 1, 2010, all U.S. citizens will have an equal ability to convert traditional Individual Retirement Accounts to Roth IRAs. Currently only taxpayers with modified gross-adjusted incomes under $100,000 are allowed to convert to Roth IRAs--the same limit applies to both singles and couples.
As you know, in a traditional IRA, contributions are tax deductible, but all withdrawals are eventually taxed as ordinary income. While there is no deduction for contributing to a Roth, the contributions are not taxed when they're withdrawn.
Next year, the government is giving us all the opportunity to convert funds that are in our traditional pre-tax IRAs and roll the funds into a Roth IRA. Of course, when you roll the money out of your traditional IRA it will be taxed at the regular 2009 personal income tax rates. But once this money is in the Roth IRA, it is free of tax for you or your heirs who may inherit the Roth IRA account. And, I think it is a safe assumption that income tax rates are going to be higher in the future than they are now. So a Roth conversion may make sense for you.
Although this conversion rule goes into affect in 2010 the old restrictions on who can contribute to a Roth IRA will continue. So if you like the concept of a Roth IRA but your adjusted gross income is high, conversion may be the only way you can get some investment money into the tax-favored Roth IRA vehicle.
Another feature of the Roth IRA is that you are not required to take minimum distributions at age 70½ from a Roth IRA that you are required to take from your regular IRA. This means that if you are so inclined, you can leave money to your heirs in a Roth IRA account. And, the money your heirs receive in the Roth IRA account is not taxable but the money they inherit from your regular IRA account is fully taxable to them. Even worse, if you leave a great deal to your heirs, they may face both the estate tax and the income tax on regular IRA inheritance funds.
Roths allow a non-spouse beneficiary to take out the distributions either by the end of the year of the fifth anniversary of the death of the first Roth owner or the beneficiary can take the money out over their life expectancy. This allows the money to come out tax free and compound tax free for the life of your heir.
One more feature of the traditional IRA to Roth conversion. The government says you only have to report the income and pay the tax on the traditional IRA in three equal amounts in 2010, 2011 and 2012.
So, what do you think about this? How attractive is this? What are some key differences that people should keep in mind as they consider this? Who would benefit from such a conversion?
Contact the KLR Wealth Management Services to see if a Roth IRA conversion would benefit your family.
By. Frank Monti, CPA
Not For Profit Group
Labels: KLR, KLR Wealth Management, Monti, Nonprofit, Tax
About this Blog
KLR is one of New England's premier accounting and business consulting firms. With 160 team members and offices in Providence, Boston, Natick and Newport, KLR provides a wide range of services to both individuals and businesses.
0 Comments :
Post a Comment
<< Home