No Income Limits for 2010 Roth IRA Rollovers and Conversions; Ability to Defer Resulting Income

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Title:
No Income Limits for 2010 Roth IRA Rollovers and Conversions; Ability to Defer Resulting Income
Date:
November 1, 2010
Publication:
From the November 2010 Riker Danzig Tax and Trusts & Estates UPDATE
Author(s):
Robert C. Daleo
Area(s) of Practice:
Estate Planning & Administration, Tax Law

This year is the first year that taxpayers may convert or roll over funds from traditional IRAs to Roth IRAs regardless of their income. Likewise, taxpayers may roll over amounts that may be distributed from qualified plans (for instance, 401(k), 403(b) and 457 plans) into Roth IRAs or roll over amounts in pre-tax elective deferral accounts to Roth accounts within such plans (assuming such rollovers are permitted by the plan) without regard to their income. While amounts rolled over to Roth IRAs or Roth accounts (or amounts involved in Roth IRA conversions) will be subject to tax at ordinary income rates, for rollovers or conversions occurring in 2010 taxpayers have the option of including all amounts in income in 2010 or deferring such amounts and including the same in income 50% in each of 2011 and 2012.

Taxpayers electing to do Roth rollovers or conversions in 2010 will need to closely monitor whether income tax rates will increase in 2011 in determining whether to defer the resulting income to 2011 and 2012 or to recognize the income in 2010. Fortunately, taxpayers can do a Roth rollover or conversion before the end of 2010 and decide whether to include the resulting income in 2010 or defer the income until 2011 and 2012 before the due date of their 2010 tax return, including extensions (and, in certain circumstances, undo the Roth conversion entirely).