2010 ROTH Conversions taxed in 2011 and 2012
Can you pay the taxes on ROTH Conversions in 2010 equally over three years (2010, 2011 and 2012) rather than paying them all in 2011 and 2012?
H.R. 4297 Sec. 512(b)(1)(iii) indicates that a person could choose to pay (a) all of the tax in 2010 or (b) no taxes in 2010, half in 2011 and half in 2012, but it is not clear to me if a person can spread the tax burden over three years.
Would it make a difference if there are two different conversions, one earmarked for 2010 taxation and the other earmarked for 2011-2012 taxation?
Thanks!
Permalink Submitted by Larry Browne on Sat, 2008-03-29 19:41
No. The only options are to spread over 2 years, or pay in lump-sum
Permalink Submitted by Al Fry on Sat, 2008-03-29 23:24
I would hope that there are some people in D.C. that have the time to get this corrected instead of wasting our tax dollars chansing retired baseball players over something they may or may not have done 5-7 years ago!
Permalink Submitted by Alan Spross on Sun, 2008-03-30 02:26
You can still make as many separate 2010 conversions as you wish, but must elect uniform tax treatment for all of them, either all in 2010 or 50/50 over the following two years.
The recharacterization deadline for these conversions remains the same, meaning that those deferring taxes will not have the full benefit of a retroactive look at their tax bills before making the decision and this is aggravated by the expiration of many of the Bush tax provision at the end of 2010.
Permalink Submitted by Catherine Turner on Mon, 2009-10-26 15:47
Alan,
A taxpayer has the desire to pay tax over three years. Say he has a $300k account. Can he convert a trad IRA to a ROTH IRA $100k say in Jan of 2010, and pay 100% of the tax when filing 2010 return and then convert the remaining $200k later on in the calendar year and allocate to have the taxes paid over 2011 and 2012?
Permalink Submitted by Janine Janine on Mon, 2009-10-26 21:04
Interesting proposal! I look forward to the reply to this possible scenario.
There are just too many rules and regulations regarding IRA’s and Roths!
Permalink Submitted by Alan Spross on Mon, 2009-10-26 21:25
That would not be an option.
A taxpayer must make the same election for ALL of their conversions done in 2010, either report them all in 2010 or defer them all. However, for married taxpayers with IRAs, each could do a conversion(s), and one spouse could elect to report their in 2010 and the other defer. That way, the 2010 bracket is utilized.
For single taxpayers or in cases where the spouse has no IRAs or QRPs to convert to a Roth, if the taxpayer plans to incrementally convert just enough to stay out of a higher bracket each year, they would just convert the incremental amount every year and opt out of the 2 year deferral for 2010 conversions. By doing that they get to use their lower bracket each year, and also can avoid any 2011 tax rate increases more easily.
If a taxpayer converted and planned to deter to 2011 and 2012, and a large tax increase was passed, they could opt out of the deferral and recharacterize part of the conversion to make it small enough to report all of it in 2010. They could then handle 2011 and 2012 with individual conversions in those years considering the increased tax rates or other changes that would affect their conversion strategy.