Converting IRA Money to a Roth IRA in 2010

[cobra de capell]

Food for thought....

If you've ended up with IRA funds either by direct contribution or through converting a 401K/403 (b), in 2010 you can convert those funds to a Roth IRA with no penalty - A Roth IRA in the future is more valuable to you than an IRA/401(k)/403(b) will be because the same amount of money will provide greater purchasing power. The IRA/401(K)/403(b) will be reduced by the tax burden, while the Roth IRA will be tax-free on the future growth in value.

Now, I realize that Cobra owners generally have money to burn, but why pay taxes when you can avoid taxes over time? Yes, tax will be due on the gain when a conversion is made, but the funds will then be tax free and not subject to a minimum withdrawal at 70 1/2.

I see 2010 as more than likely the lowest tax year for awhile based on what the Obama Administration has done and is planning to do. Plus, gains on IRA funds took a huge hit in the past year with the stock market in the dumper - converting at the low end and accruing any subsequent gains tax free seems like a no-brainer to me - even if one will be in a relatively high tax bracket in 2010. My understanding is that this is a one time deal and was passed into law in 2006. It could also be done this year (2009) but only if you are under the maximum income level.

If you have funds in a 401K that can be converted to an IRA, it seems like that should be done by year-end 2009. That will set up a clean conversion of those funds to a Roth IRA in 2010.

I'm just a banker, not a financial adviser - just thought that I'd put this tip out there just in case someone is unaware of this interesting opportunity.

Go to http://www.investorguide.com/igu-art...nprepared.html for an overview if interested. The conversion is covered in IRS PUB 590.

I'm thinking that this 'opportunity' may not get much press due to the tax avoidance element over time. The fact that most people have lost a huge portion of their IRA funds in recent months should prompt interest in converting at the low end with future gains (hopefully) tax free. Who hows what the tax liability will be for all of us throughout the Obama years.