newspaper quip “interest-free loan”
The following quip was published today. I think all the article was referring to is being able to pay half the tax in 2011 without incurring interest. However, maybe I’m missing something in the tax act that was passed yesterday? … Am I missing a subtly that is inferred by the article?
Today the Houston Chronicle stated the following, “the extension of current income tax rates gives wealthy taxpayers the equivalent of an interest free loan if they convert a regular IRA to a Roth IRA by year-end. Taxpayers in the highest tax brackets who expected rates to rise next year were faced with reporting all the additional income from conversions on the 2010 returns. With the tax legislation, wealthy savers can now defer and use those tax dollars earn something…”
Permalink Submitted by Alan Spross on Sat, 2010-12-18 19:05
It’s basically a valid point, but subject to the individual’s personal tax situation as well. I suppose the two year deferral on the conversion tax bill is tantamount to an interest free loan from the US Treasury. However, 2011 estimates or withholding must be addressed by April to avoid underpayment penalties, although meeting a safe harbor could mean that the tax added by the conversion could be essentially delayed to April, 2012 for the first half of the conversion income, but then the prior year safe harbor will require larger quarterly estimates for 2012 to begin in April, 2012.
It is true that those whose brackets would have risen in 2011 are now safe until 2013, and can therefore defer the conversion income for two years and deal with estimates per above.