ROTH IRA CHANGES
A House-Senate conference committee released H.R. 4297, the Tax Increase Prevention and Reconciliation Act of
2005 (Tax Reconciliation Act). The House promptly approved the bill on May 10, 2006, by a vote of 244 to 185 and
the Senate followed the next day by a vote of 54 to 44. President Bush signed the bill into law at a While House
ceremony on May 17.
The Tax Reconciliation Act eliminates the $100,000 adjusted gross income ceiling for converting a traditional
individual retirement account (IRA) to a Roth IRA, for tax years after 2009. A conversion is treated as a taxable
distribution, but is not subject to the 10 percent early withdrawal penalty. Taxpayers who convert in 2010 can elect
to recognize the conversion income in 2010 or average it over the next two years.
The elimination of the $100,000 ceiling has higher income taxpayers very excited. High-income taxpayers with
substantial amounts in traditional IRAs previously were shut out of the benefits of conversion. Now, anyone can
convert to a Roth IRA. Many critics are calling the "revenue raiser" classification of this Roth conversion
opportunity for high-income taxpayers a "budget gimmick."
Reminder. Contributions to a Roth IRA are not deductible, but the earnings are permanently tax-free. Also, Roth
IRAs have no required minimum distribution at age 70 ½.
Planning strategies. Most experts believe that such conversions will be advantageous because future tax rates are
not likely to go down significantly. While the provision would raise revenue in the short-term, estimates from the
Urban Institute for Tax Policy indicate that the provision is ultimately a revenue drain.
Click here to see sample conversion
A House-Senate conference committee released H.R. 4297, the Tax Increase Prevention and Reconciliation Act of
2005 (Tax Reconciliation Act). The House promptly approved the bill on May 10, 2006, by a vote of 244 to 185 and
the Senate followed the next day by a vote of 54 to 44. President Bush signed the bill into law at a While House
ceremony on May 17.
The Tax Reconciliation Act eliminates the $100,000 adjusted gross income ceiling for converting a traditional
individual retirement account (IRA) to a Roth IRA, for tax years after 2009. A conversion is treated as a taxable
distribution, but is not subject to the 10 percent early withdrawal penalty. Taxpayers who convert in 2010 can elect
to recognize the conversion income in 2010 or average it over the next two years.
The elimination of the $100,000 ceiling has higher income taxpayers very excited. High-income taxpayers with
substantial amounts in traditional IRAs previously were shut out of the benefits of conversion. Now, anyone can
convert to a Roth IRA. Many critics are calling the "revenue raiser" classification of this Roth conversion
opportunity for high-income taxpayers a "budget gimmick."
Reminder. Contributions to a Roth IRA are not deductible, but the earnings are permanently tax-free. Also, Roth
IRAs have no required minimum distribution at age 70 ½.
Planning strategies. Most experts believe that such conversions will be advantageous because future tax rates are
not likely to go down significantly. While the provision would raise revenue in the short-term, estimates from the
Urban Institute for Tax Policy indicate that the provision is ultimately a revenue drain.
Click here to see sample conversion
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Topics Covered:
and understanding some of the most difficult
financial planning obstacles surrounding IRA and
401(k) plans.
Topics Covered:
- Required Minimum Distributions
- Create Multi Generational IRA
- Converting Traditional IRAs to Tax-Free IRAs
- How to insure IRA income last a lifetime
- Contributions Rules
- Transferring to beneficiaries in the most tax
efficient methods. - Roth IRA Rules
- Tax Efficient Roth Conversion methods.
- Should you contribute to a 401(k) over match