William Byrnes' Tax, Wealth, and Risk Intelligence

Why is this Topic Important to Wealth Managers? Provides analysis for those wealth managers who may be considering a Roth IRA conversion for their clients.  Discusses potential benefits and detriments as well as comparative analysis.

There is a lot of talk of Roth IRA roll-overs this year as 1) the AGI limit on conversions has been lifted, and 2) for conversions in 2010, the tax owed is required as income not in 2010, but rather half in 2011 and half in 2012.   And the tax rates will remain stable and low for both these years – signed into law as part of the Obama Tax Cut Compromise (See rates for 2011 and 2012 here).

On its face, many wealth managers have good reason to consider the conversion for their clients this year.  But the question becomes, does it make sense, economically?

The crux of the problem lies in the early withdrawal penalties on the IRA, which is 10% if the account owner takes a distribution before age 59 1/2 or past allowable annual distribution limits before age 70 1/2.

Let’s take a look at two examples of situations where conversions may be considered this year (thus one day left….)  To read this article excerpted above, please access www.AdvisorFX.com