As a financial advisor and tax professional, I have been receiving many questions regarding the new Roth rollover rules that will take effect in 2010. This new rule will allow anyone to convert their traditional IRA to a Roth IRA regardless of their income, for tax year 2010. Currently, if you are a single filer your Roth IRA contribution begins to get phased out. To help understand this new rule I have answered a couple of key questions.
1. What are the differences between a Roth IRA and a traditional IRA?
• Contributions are taxed.
• Earnings are not taxed.
• You DO NOT need to take minimum distributions. Ever.
• You can continue to make contributions to the Roth IRA for the rest of your life, as long as you have some earned income (or alimony).
• In every year except 2010, there is an earnings limit.
2. What is my tax liability when I make the conversion?
If you have made only tax deductable IRA contributions you will have to pay taxes on the entire balance when you convert to the Roth. After this conversion the money can then grow tax free. If you have made both tax deductable and nondeductible contributions then your tax bill will be based on the ratio of your total balance of all IRA money.
3. When will the tax be due on this conversion?
A taxpayer is able to spread the bill over two years. You report the first half of the conversion on your 2011 tax return and the balance on your 2012 return.
4. Will making this conversion stop the required minimum distribution rules of a regular IRA when I reach 70-1/2?
There are no minimum required distribution rules for a Roth IRA’s and remember the distributions will still be income tax free.
Individuals should keep the Roth IRA conversions on their minds and consult with a tax specialist before implementing. Advance planning and strategizing should be top priority.

Ms. Nicole Albrecht has been associated with Financial Accounting Services for many years. She focuses on the investment and retirement needs of tax clients. She currently holds her series 7 and 66 licenses as an Investment Advisor Representative. To keep up with the changes and client’s needs, Nicole is a Certified QuickBooks Pro-AdvisorSM and is an Enrolled Agent licensed to practice before the IRS.