Wall Street Journal, 9/19-9/20/2009 weekend edition
Effective Jan. 1, 2010, the federal government is permanently dropping the income limit for transferring savings to a Roth IRA from a traditional individual retirement account or employer- sponsored retirement plan. Although the conversion is subject to income tax, future withdrawals (that meet holding requirements) would be tax-free.
This article reviews some common questions about the changes.
Q: I opened a traditional IRA several years ago in anticipation of the 2010 rule changes. None of my IRA contributions were tax-deductible, because my income is too high. And the market meltdown has left the value of my IRA below the amount invested. I assume that for me—and many others—a conversion would involve no tax bite whatsoever. True?
A: As long as none of your original IRA contributions were tax-deductible, and as long as your account value is worth the same or less than your original contribution amount at the time you convert, you would owe no tax if you convert the remaining assets to a Roth. In addition, you might be able to claim a miscellaneous itemized deduction for the loss, possibly allowing you to actually make money on the Roth conversion, says Ed Slott, an IRA consultant in Rockville Centre, N.Y.
Normally, losses within an IRA aren't deductible. But you may be able to deduct a loss if you convert your entire traditional retirement account to a Roth and the account contains only nondeductible, or after-tax, contributions. If you have multiple traditional IRA, Simplified Employee Pension (SEP) IRA and Simple IRA accounts, you have to convert all of them, and the total converted would have to be less than your basis—the value of the nondeductible contributions—to possibly claim a deduction.
Read the article.
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