Every Cloud Has A Silver Lining

Are you having trouble finding a silver lining in today's financial turmoil? I'll give you one:

This may be an excellent time to re-characterize IRA assets to a Roth IRA.

When you do the conversion, you have to pay taxes on the amount converted. Since the value of your IRA is probably lower than it was, the tax cost of the conversion will be lower too. When the markets recover your growth will remain tax deferred. If you have had a Roth for more than five years and you are over age 59 ½ when you withdraw the growth, you may never pay taxes on the growth!

Before you jump in with both feet, here are a few additional considerations:

1. To be eligible to make the IRA to Roth Conversion, you must have a Modified Adjusted Gross Income (MAGI) of $100,000 or less and not be filing taxes as married – separate.
2. The tax would be due on April 15^th of 2009, unless you wait until January 2009 to make the conversion. If you wait then the taxes would not be due until April 2010. But you also have to ask yourself if you think your account values will go up or down between now and January.
3. Changes coming to the Roth IRA conversion rules which take effect in 2010 will allow you to pay the tax over two years and will also eliminate the income limitation.

For many, there may be no better time than now to make the Roth IRA election. You may want to consider it too.

Every cloud has a silver lining (5.00 pm) by jensaar

Comments

[Jeff Rose]

Great minds think a like. I have a similar post making it's way through compliance at this very moment. Be sure to link back when I do.