by Tenielle Shellman, Manager – Central Planning, Wealth Enhancement Group

Currently in 2009, you are not eligible to convert a Traditional IRA to a Roth IRA if your joint adjusted gross income exceeds $100,000 or if you are married and file separate tax returns. In 2010 however, the income restrictions for converting a Traditional IRA to a Roth IRA will be lifted, so you’ll be allowed to do a Roth conversion without regard to your income and your tax filing status. In addition, the law includes a special rule for conversions that occur in 2010. For that year only, unless you elect to report it in 2010, income from a conversion will be reported in two equal installments in 2011 and 2012. The income will be accelerated; however, to the extent you take withdrawals before 2012.

Once converted to a Roth IRA, qualified distributions are tax-free after a five year waiting period and the owner's age 59-1/2. In addition, distributions are not required on Roth IRAs as they are on Traditional IRAs at age 70 ½.

Given the new rules, many individuals are wondering if a conversion of all or a portion of their Traditional IRA to a Roth IRA makes sense for them.

Following are some reasons why you may consider a Roth conversion:

• If you expect your income tax bracket to be the same or higher in retirement
  
• If you believe that you will not need all or a portion of your IRA funds in retirement
  
• If you wish to pass on tax-free assets to your beneficiaries
  
• If you encounter a year in which your income is lower than most other years, that year may be a good year in which to convert

Following are some reasons why you might not consider a Roth Conversion:

• If you expect to have a lower tax bracket in retirement
  
• If you will need the funds soon or immediately
  
• If you are unable to pay the taxes owed from non-retirement assets
  
• If you would rather not “lock in” the tax implications in the year of the conversion, but perhaps prefer to spread out the taxes as you are required to take distributions from your Traditional IRA

Please contact your Wealth Enhancement Group Team along with our Tax Advisor to discuss whether a Roth Conversion may be right for you.