Traditional IRA to Roth IRA Conversion

By Peter Sweetser

First, a conversion is when you move assets from a tax-deferred account (such as a 401(k) or Traditional IRA) into a Roth IRA; it is an intentional, taxable event. When you take advantage of this option, you pay income taxes today on 100% of the pre-tax dollars you convert. Once the taxes are paid, income taxes “may” never be due on appreciation or subsequent withdrawals. We say may because certain requirements must be met to achieve the tax-free status. This includes not touching the assets for five years from the conversion date along with one of four other criteria.

Second, since January 1, 2010, the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) allows for the conversion of a Traditional IRA to a Roth IRA without any income restrictions. This is significant, particularly for those with a modified adjusted gross income (MAGI) greater than $100,000 who previously were excluded from many Roth IRA benefits. It’s also very compelling to convert a non-deductible IRA.

Third, a conversion may not be right for everyone, but everyone who is eligible should understand its benefits. There are more details to consider so please call 800-932-3271 or e-mail sweetser@famfunds.com to discuss converting. As always, we recommend including your accountant or tax preparer in the final decision.

Please see Fenimore disclosure.