8% Tax Credit for Roth Conversion??
A client of mine recently attended a public seminar (I believe sponsored by an annuity company) where they were told that they could receive an 8% tax credit for the next two years for IRA assets that they converted this year to a Roth. I am unaware of this and am trying to figure out if they were told accurate information. The only thing that I can think of is the “Savers Credit” but I don’t know if that is applicable when it comes to a Roth conversion. With their pensions and Social Security the client has annual taxable income of $115.000. If this is true can you tell me where I would find more information on it? If they have received incorrect information or have misinterpreted the information given at the seminar can you tell me what you think they are incorrectly referring to?
Respectfully,
Bob
Permalink Submitted by Alan Spross on Fri, 2010-01-15 19:28
Well, it can’t be the Savers Credit because that credit only applies to new contributions, not to rollovers including Roth conversion rollovers.
If a client is subject to RMDs and converts, the reduction in taxes on the RMDs coupled with the two year deferral on the conversion taxes could be consolidated into a tax savings, but when they say 8%, the question is 8% of what?
Whatever details are behind this figure, it may well be that it can be done with any 2010 Roth conversion. Is client subject to RMDs?
Permalink Submitted by Robert Stamm on Fri, 2010-01-15 20:08
2010 is the first year that they are subject to RMDs.
Permalink Submitted by Alan Spross on Fri, 2010-01-15 20:23
They would then need to distribute the 2010 RMD prior to any conversion. But whatever portion of their plan they convert, the 2011 and later year RMDs would be reduced by that same proportion.
But I think the client needs to supply more details about the elements of any alleged 8% credit.
Permalink Submitted by mk foss on Sat, 2010-01-16 00:03
I heard that if someone is in the 35% bracket for 2010 and reports 50% of the Roth conversion in each of 2011 and 2012 with a 39.6% bracket – it’s like paying 8% interest. Maybe someone was reversing that and saying you have an 8% savings by paying the tax with the 2010 return.
Except for that, I’m clueless on the 8%