It’s Never Too Late for an Roth IRA Conversion 2011

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If you?re deep into your retirement, you may ponder if you should consummate an Roth IRA conversion in 2011. Well you can - now. Let?s consider the conditions for changing from a traditional IRA or 401k and some reasons for doing so.

IRA Rollover via Roth IRA Conversion Conditions :

- You can be any age - past 70½ is permitted

- You may have already have started taking IRA RMDs from the traditional IRA and still convert.

- You need to have non-IRA funds to pay your conversion tax to make the actual conversion worthwhile

- There are no income limitations as there were previously

-Recommended if converted assets will remain untouched for at least 5 years

Reasons to complete an IRA rollover to your Roth IRA conversion 2011:

- No RMD?s are required from a Roth IRA by the owner or his spouse. But with a regular IRA, you?re required to take required minimum distributions (RMDs). And RMDs create  taxation for you.

- You thought you would leave your IRA to your non-spouse beneficiary but taking RMDs may well  deplete it.  Your IRA beneficiary will have to pay tax on his / her RMDs too.

- You fear that tax rates will increase in the future so withdrawals from traditional IRAs in the foreseeable future - either for you or your heir - will undercut the benefit of holding wealth in your traditional IRA.

- Your income is low in 2011, so completing the Roth IRA conversion 2011 will trigger less ?conversion? tax.

The table shows the tax rates at each income level (after all reductions and exemptions) that will be used against your income plus the entire amount you?ll convert.

IRA rollover to Roth IRA Conversion
Marginal Tax Rates
(2011)
Marginal 

tax rate

 Single Married Filing Jointly
10% 0 0
15% 8,500 17,000
25% 34,500 69,000
28% 83,600 139,350
33% 174,400 212,300
35% 379,150 379,150

 

 

 

 

 

 

 

Waiting until your regular income is low ? in retirement - can reduce the higher marginal tax rates on that conversion from the IRA rollover to Roth IRA conversion 2011.

If you wait until your income is low (in retirement), you can reduce the higher tax rates on the Roth IRA conversion 2011.

Also, keep in mind that distributions from a traditional IRA increase one's adjusted gross income which could mean:

  • more tax is paid on social security income
  • the amount of medical expenses (including long term care premiums) that can be deducted is reduced

The tax free Roth IRA distributions will not impact the above.  Therefore, you may very well benefit from a Roth IRA conversion 2011.