The extension of current income-tax rates gives wealthy taxpayers the equivalent of an interest-free loan if they convert a regular individual retirement account to a Roth IRA by Dec. 31.
Bloomberg reports investors in traditional IRAs pay taxes up front on conversions to Roth IRAs to get tax-free withdrawals later. As Bloomberg notes, earners in the highest tax brackets who expected rates to rise next year were faced with reporting all the additional income from conversions on their 2010 returns. With the tax legislation, wealthy savers can now defer and use those tax dollars to earn something.
“It’s the deal of the century,” Ed Slott, founder of website irahelp.com told Bloomberg. “It’s like Congress is giving you an interest-free loan to build a tax-free savings account.”