Tuesday, March 22, 2011

A lost opportunity? Perhaps. . .

Q.  At a dinner table discussion last night, I learned that if I roll my traditional IRA into a Roth IRA, the limitation on Adjusted Gross Income has been lifted and I can defer the payment of the tax over the next 2 years. I'm seriously considering this. What do you think?

A.  Your dinner table conversation was half true. It is true the AGI limitation has been lifted, which is really good news for many, many taxpayers. The half truth is the deferral of payment of the tax was a one time opportunity only for those rolling their IRA's over to a Roth IRA in 2010. If you choose to do so this year, (which if feasible for you considering the extra tax burden) you will need to adjust your estimated tax payments to cover the entire additional tax.

Having said that, a Roth IRA or now a Roth 401K, are the only vehicles available which allow us to invest in our retirement and have the earnings totally tax free, as long as the requirements are met. I highly endorse the opportunity to do so. With a little planning, even if you can only afford to roll over a few thousand dollars each year, the savings in tax 10, 20, or even 30 years from now could be enormous!

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