With all the talk of Roth IRA conversions, and the benefits of the two-year tax smooth, Congressional inaction on taxes is confusing investors.
As the Wall Street Journal’s Laura Saunders notes, even this year's alternative-minimum-tax level is up in the air. Investors are most at risk, because investments are facing higher percentage increases than other types of income in coming years.
One thing we know for sure, according to Saunders: This is the first year all taxpayers have been allowed to convert regular individual retirement account assets to Roth IRAs, regardless of their income. This year converters can take also take advantage of Uncle Sam's one-time offer to push conversion income into 2011 and 2012, taking half each year at then-current rates.
Although many have jumped to make the switch, others remain on the fence. They have one big fear: Lawmakers will find a way to tax Roth income in the future, especially given current budget pressures.
Saunders notes experts have pooh-poohed this fear for many valid reasons, but recently released deficit-cutting proposals give it a spark of life. Of course, the proposals are not detailed plans; instead, they are meant to serve as a wake-up call as to what it will take to cut the deficit.