Roth IRA 2010 conversion 100% requirement
If a Trad IRA is converted to a Roth IRA in 2010 do all or 100% of all trad IRAs have to be converted? If a person has three IRAs do they all have to be converted or can they pick or choose? Please advise.
If a Trad IRA is converted to a Roth IRA in 2010 do all or 100% of all trad IRAs have to be converted? If a person has three IRAs do they all have to be converted or can they pick or choose? Please advise.
Permalink Submitted by Al Fry on Tue, 2008-12-02 22:22
Any one or part of one can be converted. However for income tax purposes, they are all treated as one TIRA, of which part of it is converted. In other words, if there is cost basis (non-deductible contributions) in one or more, it is spread pro-rata among the entire TIRA universe.
Permalink Submitted by Alan Spross on Tue, 2008-12-02 22:43
The tax rule that Al cited regarding basis handling also extends to the default rule for deferring 2010 conversion taxes to 2011 and 2012. If you elect to do multiple conversions in 2010, you must use the default rule for all of them OR elect to pay the tax on all of them in April, 2011. You cannot pick and choose to help use up some of your 2010 marginal bracket. The 2010 bracket will include all conversions or none of them.
Therefore, some additional tax planning will have to be done in 2011 to decide when to pay these taxes. This will have to be done without even knowing what marginal rates will be in 2011 and 2012, since the Bush cuts expire at the end of 2010. For that reason, taxpayers may actually wish to convert incremental amounts each year and pay taxes accordingly with recharacterization options in mind rather than converting huge amounts in 2010 and then trying to unwind the tax impact of such.