Captains Log » ROTH IRA Conversion

October 17 deadline to recharacterize Roth IRA conversions

mbrimhall — Fri, 02 Sep 2011 17:20:10 +0000

Recent market declines may have created a tax planning opportunity when it comes to recharacterizing Roth IRA conversions executed in 2010. In recent weeks, many investors have moved from equities to assets that traditionally have been considered less risky, such as U.S. Treasuries. This “flight to safety” has seen equity values decline and may have created a recharacterization opportunity for you.

The value of the assets converted last year from your traditional IRA to your Roth IRA may have fallen along with the stock market, so you may want to consider unwinding your Roth IRA conversion. Converting back to a traditional IRA can eliminate the income tax due on the amount originally converted. And you still have until October 17 to undo the original conversion. What’s more, if you’ve already filed your taxes, you’ll receive a full refund on the income tax paid on the conversion.

Recharacterization impacts both your income-tax planning as well as your overall financial planning. A Roth IRA may still be a viable investment strategy for your long-term plans. Even if you undo an earlier conversion, you can later reconvert your assets – hopefully while asset values are still low – back into a Roth IRA, when it makes the most sense for you.

While there can be a lot of benefits, the rules surrounding recharacterization and reconversion are quite complex and require careful forethought.

Compliance: M11-1846

Understanding the 2010 Roth Conversion

Melissa Ellis — Mon, 27 Sep 2010 21:59:06 +0000

By Melissa Ellis, Investment Executive

There has been a lot of talk lately in the media about Roth Conversions due to the limits for such conversions being lifted for 2010. Although the limits have been lifted it still does not mean that converting your IRA to a Roth IRA is the right thing to do.

Previously those individuals whose modified adjusted gross income was more than $177,000 for married couples and $120,000 for singles were not able to contribute to a Roth IRA. However, in 2010 individuals whose income is higher than these levels are able to convert their traditional IRA’s to a Roth IRA. This does not mean that you can contribute to a Roth IRA this year if your income is above these limits. It only means that you can covert existing IRA’s to Roth IRA’s. With this conversion, however, comes a hefty tax implication as taxes for that year are owed on the full amount that is converted. Therefore, although it may be a great opportunity for those who have previously not been able to participate in this investment tool it may not be the best choice for everyone. Our opinion is that converting your IRA to a Roth IRA is only worth it if you have money set aside outside the IRA now to pay the taxes on the conversion.

If you would like to discuss your personal situation with us please feel free to call our office at 801-295-7373 to determine if this conversion would be beneficial for you.

AD #: C10-19734