Tax Planning Advice: Consider a Roth IRA Conversion—Tim Speiss

Paying the tax on converted IRA assets at a 35% rate may be advantageous for clients.

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This is the 13th in a series of 23 tax tips that AdvisorOne will publish on each business day in March as part of our Tax Planning Special Report (see our Special Report calendar for a more complete list of topics to be covered and experts who will deliver their insights).

The tax tip today comes from Tim Speiss, partner and chairman, Personal Wealth Advisors, at EisnerAmper LLP. Speiss has provided comprehensive tax planning and investment, compensation, and financial planning services to executives, families and business owners for close to 30 years. Speiss holds a BS in business and MS in taxation from Widener University.

The Tip: Consider Converting to a Roth IRA

Speiss says that converting IRAs to Roth IRAs “will probably be a very viable idea for the next 22 months or so.” With Roth IRAs, a taxpayer can pay taxes upfront and make tax-free withdrawals later. Converting now makes good sense, Speiss (left) says, because taxpayers who expect to be—“and most of our clients will always be”—subject to the top-end rate will pay taxes on the conversion at the current 35% rather than the expected higher rate later.

The $100,000 income limit on conversions from an IRA or 401(k) to a Roth IRA was eliminated in 2010. In addition, those who converted in 2010 are allowed to spread their tax payments over two years. Reuters recently reported a huge jump in Roth IRA conversions at major providers in December as clients acted to take advantage of extension of current income tax rates.

Speiss says EisnerAmper is not pressing its clients to convert this year; they can wait until next year to do so. “But I can imagine in 2011, we’ll relook at any of our clients who have not converted traditional IRAs into Roth IRAs and paid taxes at a 35% rate.”

See our Tax Planning Special Report calendar for a list of future topics to be covered.

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