Subsequent Roth Conversion Developments
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Subsequent Roth Conversion Developments
New developments since publication of the article, "Conversions to Roth IRAs and Roth
Recharacterizations," include the following:
Roth Conversions Allowed for High-Income Individuals after 2009. – A taxpayer ordinarily may
not convert any part of an IRA to a Roth IRA if (1) the taxpayer’s modified “adjusted gross
income” for the tax year exceeds $100,000 or (2) the taxpayer is married filing a separate return.
However, after 2009, a taxpayer will be able to convert an IRA to a Roth IRA regardless of the
level of his or her income – and regardless of a separately filed return. Furthermore, one-half
the income from a Roth conversion in 2010 will not be taxable until 2011 and the other half will
not be taxable until 2012 (unless the taxpayer elects to report it all in 2010). However, if the
taxpayer takes a distribution of any of the converted funds before 2012, the taxpayer must
accelerate payment of the deferred tax on the distributed funds. (Tax Increase Prevention and
Reconciliation Act of 2005, Pub. L. No. 109-455, § 512; I.R.C. § 408A.)
Extension of Roth Conversions to Eligible Retirement Plans. – Taxpayers have long been able
to convert their regular IRAs to Roth IRAs. However, to convert funds in an employer retirement
plan to a Roth IRA, taxpayers have generally had to roll the funds over first to a regular IRA and
then convert the regular IRA to a Roth IRA. By contrast, after 2007, a taxpayer may directly convert
all or part of an “eligible plan” to a Roth IRA without using a regular IRA as an intermediary. For
this purpose, an eligible plan is a qualified retirement plan, a section 403(b) tax-sheltered
annuity (TSA), or an eligible state and local government plan.
Conversions of eligible plans to Roth IRAs will be subject to the same conditions that apply to
regular IRA conversions. That is, before 2010, a taxpayer may generally make the conversion
only if (1) the taxpayer’s modified “adjusted gross income” for the tax year does not exceed
$100,000 and (2) the taxpayer is not a married individual filing a separate return. After 2009, a
taxpayer will be able to make the conversion regardless of the level of his or her income – and
regardless of a separately filed return. Of course, conversions to Roth IRAs are taxable
(exclusive of return of investment) whether the converted funds come from a regular IRA or an
eligible plan. (Tax Increase Prevention and Reconciliation Act of 2005, Pub. L. No. 109-455, §
512; Pension Protection Act of 2006, Pub. L. No. 109-280, § 824(a), (b), (c); I.R.C. § 408A.)
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New developments since publication of the article, "Conversions to Roth IRAs and Roth
Recharacterizations," include the following:
Roth Conversions Allowed for High-Income Individuals after 2009. – A taxpayer ordinarily may
not convert any part of an IRA to a Roth IRA if (1) the taxpayer’s modified “adjusted gross
income” for the tax year exceeds $100,000 or (2) the taxpayer is married filing a separate return.
However, after 2009, a taxpayer will be able to convert an IRA to a Roth IRA regardless of the
level of his or her income – and regardless of a separately filed return. Furthermore, one-half
the income from a Roth conversion in 2010 will not be taxable until 2011 and the other half will
not be taxable until 2012 (unless the taxpayer elects to report it all in 2010). However, if the
taxpayer takes a distribution of any of the converted funds before 2012, the taxpayer must
accelerate payment of the deferred tax on the distributed funds. (Tax Increase Prevention and
Reconciliation Act of 2005, Pub. L. No. 109-455, § 512; I.R.C. § 408A.)
Extension of Roth Conversions to Eligible Retirement Plans. – Taxpayers have long been able
to convert their regular IRAs to Roth IRAs. However, to convert funds in an employer retirement
plan to a Roth IRA, taxpayers have generally had to roll the funds over first to a regular IRA and
then convert the regular IRA to a Roth IRA. By contrast, after 2007, a taxpayer may directly convert
all or part of an “eligible plan” to a Roth IRA without using a regular IRA as an intermediary. For
this purpose, an eligible plan is a qualified retirement plan, a section 403(b) tax-sheltered
annuity (TSA), or an eligible state and local government plan.
Conversions of eligible plans to Roth IRAs will be subject to the same conditions that apply to
regular IRA conversions. That is, before 2010, a taxpayer may generally make the conversion
only if (1) the taxpayer’s modified “adjusted gross income” for the tax year does not exceed
$100,000 and (2) the taxpayer is not a married individual filing a separate return. After 2009, a
taxpayer will be able to make the conversion regardless of the level of his or her income – and
regardless of a separately filed return. Of course, conversions to Roth IRAs are taxable
(exclusive of return of investment) whether the converted funds come from a regular IRA or an
eligible plan. (Tax Increase Prevention and Reconciliation Act of 2005, Pub. L. No. 109-455, §
512; Pension Protection Act of 2006, Pub. L. No. 109-280, § 824(a), (b), (c); I.R.C. § 408A.)
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The author intends that this website provide accurate and authoritative information on the subject matter
covered. However, the information provided on this website is not a substitute for the advice of an attorney,
accountant, or other professional; and the author is not offering legal, accounting, or other professional
advice. The material presented on this website is not intended for use, and may not be used, to avoid tax
penalties. If you need legal advice or other professional help, you should seek (from an independent
attorney, accountant, or other competent professional) advice based on your own particular circumstances.
covered. However, the information provided on this website is not a substitute for the advice of an attorney,
accountant, or other professional; and the author is not offering legal, accounting, or other professional
advice. The material presented on this website is not intended for use, and may not be used, to avoid tax
penalties. If you need legal advice or other professional help, you should seek (from an independent
attorney, accountant, or other competent professional) advice based on your own particular circumstances.