2010 Roth Conversions

[Guest MSDalt]

From what I have read, the AGI limit for Roth Conversions will be removed in 2010. I have two questions.

1.) Is it removed for 2010 alone or is the income limit removed indefinitely?

It appears that the resultant taxes can be paid by treating the 2010 conversion(s) as part of 2010's taxable income or by spreading the taxable income equally over 2011 & 2012 (ostensibly subjecting the conversion to higher tax rates following the expiration of the Bush tax cuts - assuming that a higher bracket is not breached by the converted amount if tax is paid in 2010).

My second question is: May I treat one 2010 conversion as taxable for 2010 and spread the taxes for another conversion over 2011 & 2012?

Thanks,

Michael

[masteff]

The income limit is removed prospectively (for all future years until otherwise changed).

The law only uses the word "election" w/ regard to spreading the tax to 2011/12. Usually "election" means either/or. The catch is that while you look at them as IRA A and IRA B, in some circumstances the IRS just sees them as one IRA combined. Just have to wait and see how the IRS approaches this one.

[jevd]

The income limit is removed prospectively (for all future years until otherwise changed).

The law only uses the word "election" w/ regard to spreading the tax to 2011/12. Usually "election" means either/or. The catch is that while you look at them as IRA A and IRA B, in some circumstances the IRS just sees them as one IRA combined. Just have to wait and see how the IRS approaches this one.

IMHO as stated above the A in IRA stands for Arrangement as far as the IRS is concerned, I believe they will consider all Roth IRAs as one and you would be allowed to do one or the other but not both.

[Guest MSDalt]

Thanks for your replies.

I don't suppose that there will be any problem in converting my traditional IRA and paying taxes in 2010 while at the same time converting my wife's IRA and spreading the taxes over 2011 & 2012.

The only issues would be 1.) limiting the conversions to maintain "reasonable" tax brackets and 2.) hoping that equity conversions benefit from rising markets.

On conversions which spread tax payments over 2011 and 2012, are there any restrictions on re-characterization if the market moves against us? IOW, how long would we have to recharacterize?

Gratefully,

Michael

[masteff]

Despite filing jointly, your and your wife's IRAs are separate so could have differing elections as you describe.

The enabling law (TIPRA 2005) didn't address recharacterization when it provided the 2-year extended taxation period... therefore I'd say that rule stands the same as right now.