2010 Roth conversion taxes spread 3 years

Submitted by Wolfgang Walter on Wed, 2009-06-24 22:01

In 2010 one can convert a regular IRA to a Roth IRA and either pay the taxes in 2010 or elect to pay the taxes half in 2011 and half in 2012. Can one partially do both? In other words, can one divide the taxes equally among three years 2010. 2011 and 2012?

If the answer is no, then I have a follow-up question: On a joint return, when both spouses convert their regular IRA to Roths, can one spouse pay taxes in 2010 and the other spouse elect to delay taxes to 2011 and 2012?

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Permalink Submitted by Alan Spross on Wed, 2009-06-24 22:10

No. All conversions of an individual taxpayer in 2010 must either have the income deferred to 2011 and 2012 OR the taxpayer can opt out and report all the income for 2010. The deadline for the decision is 10/15/2011, the extended due date, the same date as the recharacterization deadline.

However, the answer to your second question is Yes. Each spouse can make a different decision regarding the two year deferral, opening up flexibility to utilize the tax brackets of all 3 years rather than just one or two.

Permalink Submitted by Bruce Steiner on Thu, 2009-06-25 02:42

While it doesn’t get all the money into the Roth at once, you can effectively spread the conversion over 3 years by converting some in 2010, some in 2011, and some in 2012.

Permalink Submitted by Robert Wright on Thu, 2009-06-25 16:54

For clarity then, when deferred to 2011 and 2012, is my understanding correct that the income has to be split 50/50 between these two years, 2011 and 2012?

Permalink Submitted by Alan Spross on Thu, 2009-06-25 18:51

Robert, that is correct. The taxes generated will be at the 2011 and 2012 marginal tax rates. And if another conversion is done in either 2011 or 2012, that income must also be added to the 50% share of the 2010 conversion.

Permalink Submitted by Robert Wright on Fri, 2009-06-26 12:43

Thanks, again, Alan.

Permalink Submitted by [email protected] on Sat, 2009-06-27 03:28

Oh my….! Such complication for the benefit of paying higher tax rates in 2011 and 2012….