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Is a 2010 Roth IRA Conversion Right For You?
Yes, the original legislation establishing the Roth IRA, written in 1997, did allow individuals to convert tax deferred money in a traditional IRA to a Roth IRA.
The catch was an income limit that made many ineligible to make such a conversion.
In fact, anyone with MAGI (modified adjusted gross income) of $100,000 or more or married filing separately was not allowed to make traditional to Roth conversions.
In May of 2006 the Tax Increase Prevention and Reconciliation Act changed the eligibility rules for Roth IRA conversions.
Effective January 1, 2010 the MAGI limit and filing status restriction are eliminated for conversions.
As it currently stands this change applies to all years beyond 2010.
Any such conversion carries with it certain tax implications.
Income taxes are due on any money leaving the tax-deferred shelter of a traditional IRA.
There is no exception if the assets are moving into a Roth IRA.
A conversion made in 2010 does carry a unique tax benefit with it.
The taxes due on a conversion made in 2010 may be spread out over two years.
So the 2010 conversion amount may be included as taxable income in 2011 and 2012.
2010 is the only year you may enjoy such benefit.
Conversions in subsequent years are included in income during th tax year in which the conversion is completed.
It is important to note that the changes in legislation do not create additional opportunities for funding a Roth IRA.
MAGI restrictions for annual contributions to a Roth still apply.
If you think a Roth conversion might be right for you be sure to seek out the assistance of a professional.