Roth IRA Conversions

Thursday, March 5th, 2009 by Cass Chappell, CFP®




I have been searching for ANY silver lining to the current stormy clouds that almost all investors have been weathering.

2010 should be an exciting year for investors who are still saving for retirement (and even those who may have to start saving again!).

The posting below was originally sent to our clients in mid-2007 – well before the current market decline.   If your balance is lower now than it was then, this strategy might make EVEN MORE sense.

Chappell Mayfield and Associates supports being green.  So, here is a recycled idea…………..        

                        .                                                                                                                                           recycle-be-green

Originally sent March 2, 2007

2010: A Roth Odyssey


On May 17, 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA).  The law contains many provisions, however, there is one provision that is one of the most exciting things I can remember in my 10 years in this business.


 First, let’s review:


  • Withdrawals from a traditional IRA at retirement are subject to income tax, withdrawals from a Roth IRA at retirement are not subject to income tax (with few limitations – consult your tax advisor).
  • Under current law, a couple (or single for that matter) must have an adjusted gross income of under $100,000 to convert an IRA (or 401k rollover) to a Roth IRA.


Drum roll please…………:

  • In 2010 (because of TIPRA), one can convert an IRA, 401k rollover, and virtually any type of retirement plan to a Roth IRA regardless of income.


  •   The rules also allow the taxpayer to spread the tax on the conversion over the next two years (2011 and 2012)!


“OK.  So how will this affect me?”


The main advantage of a Roth IRA is that withdrawals are made, after age 59 ½, totally income tax free (as long as it has been 5 years since your date of first contribution or 5 years since each conversion is made)Also, there is no required minimum distribution after you reach 70 ½, like there is with a traditional IRA.

The decision to convert, or not to convert, will be affected by many issues, such as life expectancy and your tax bracket expectation at retirement.  Needless to say, we will have calculators and other resources to help you make your decision.


 “What can I be doing in the meantime?”

  •  It is almost always a good idea to maximize retirement savings. This event makes it even more appealing.
  •  If you aren’t able to contribute to a Roth now, contribute to a traditional IRA….we can convert it in 2010.
  • If you have an old 401k lying around, don’t automatically roll it into your new 401(k) at work. Consider rolling it over to an IRA and funding it…we can convert it in 2010.
  •  Many 401(k) plans allow you to rollover your balance even while you are working. It may be a good idea to beef up your contributions in anticipation of 2010.
  •  Imagine having a pool of money to draw from in retirement that is 100% income tax free forever!

For some, this may even impact your 2008 taxes.  There is still enough time to make a substantial impact on your 2010 retirement savings – and beyond.


This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

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