Traditional IRA Conversion to ROTH

[Eli]

A friend has 2 Traditional IRA's that she wants to convert to ROTH IRA's. The IRA's are now in a bank and will mature in the next few weeks. Will this be a taxable transaction for her? I'm not sure what amount is in the IRA. Do I need to post more info on this?
Thanks!

Eli

[Bees Knees]

Yes it is taxable. Take a look at the Conversion Rules in tab 13 of TTB (page 13-14 in the 2006 edition, if you got it already).

[John of PA]

And as an FYI

Yes and as an FYI, these conversion rules are eliminated starting in the year 2010, anyone can convert. Also the tax on the conversion (starting in 2010) can be deferred, and paid in 2011 and 2012). If anyone is holding off until 2010 to do the conversion, opening a small Roth now can start the clock going on the 5 year rule.

[Bees Knees]

I wouldn't wait until 2010 to plan for anything. Congress is up to 4 major tax bills per year now, and accelerating fast. We ought to have at least 20 revisions to the code by the time 2010 gets here.

[John of PA]

Code revisions

Sounds like our tax software companies (and ourselves) are going to be very busy, as is our friends at TMI.

[New York Enrolled Agent]

A good planning tool for your high AGI taxpayers who are not eligible to do Roth IRAs would be to fund non-deductible traditional IRAs for years 2006 through 2009. Then in 2010 they can convert to a Roth and pay only a small amount of tax on the conversion. They then have the Roths which their high AGI previously prohibited.

[sea-tax]

A good planning tool for your high AGI taxpayers who are not eligible to do Roth IRAs would be to fund non-deductible traditional IRAs for years 2006 through 2009. Then in 2010 they can convert to a Roth and pay only a small amount of tax on the conversion. They then have the Roths which their high AGI previously prohibited.

Ny Ea I like your strategy, they could also participate in the Roth 401k if available to them. But I would also give them some warning like Bees said . That the tax code lately has stayed unchanged for very long.

[Eli]

Thank you.....

all for the assistance.

Eli

[New York Enrolled Agent]

Sea-tax

You are correct - we never know????
But, I think this particular provision will not be changed. The treasury collected a large amount of revenue when the 1998 four year conversion to Roths was allowed. This conversion planned for 2010 has been scored in the legislative process as a very LARGE revenue generator. Revenue enhancers are hard to find.

[John of PA]

Good Idea!

A good planning tool for your high AGI taxpayers who are not eligible to do Roth IRAs would be to fund non-deductible traditional IRAs for years 2006 through 2009. Then in 2010 they can convert to a Roth and pay only a small amount of tax on the conversion. They then have the Roths which their high AGI previously prohibited.

Yes I like this idea, thank you.