- About Us
- Retirement Planning
- Investment Planning
- Estate Planning
- Life Goals
- Business Succession Planning
- Roth IRA Conversion
- The Planning Process
- Financial Glossary
Companies of Focus
- Lab Employees
Oil Company Employees
- Chevron Newsletters
- Chevron General Planning
- How Personality Can Affect Performance
- Addressing Financial Planning Issues - Back to Basics
- 11 Financial Resolutions for 2011
- Midyear Review
- 5 Risks To Your Retirement Savings
- Retiring From Chevron - The Risk You Didn't Realize
- A Retirement Savings Tool You Might Be Missing
- Planning for a Long Retirement
- Roth IRA Conversions - a Golden Opportunity
- Demystifying IRA Distributions
- Simplifying Your Retirement From Chevron
- Plan Today for Retirement Tomorrow
- Managing Your Cash Flow in Retirement
- Budgeting to Retire
- Investment Risk - There's No Escaping It!
- Lessons Learned from the Market
- The Folly of Market Timing
- Dollar Cost Averaging
- Budgeting the College Lifestyle
- Fitting College Funding Strategies into your Overall Picture
- Five Ways to Cover College Tuition
- Teaching Children About Money
- Checking Up On Your Estate Plan
- Prepare Your Estate Plan for Changes in Tax Rules
- Covering All Bases for Timely Estate Planning
- Determining the Need for Disability Income Insurance
- The Hidden Cost of Health Insurance
- The American Taxpayer Relief Act of 2012
- Get Yourself in Tip-Top Tax Shape
- Think Twice About Your ESIP
- Talking Taxes
- Year End Tax List
- How Inflation Affects You
- Now That The Election's All Over
- The Flows in Your Plan
- How to Handle a Financial Windfall
- Dealing with Restructuring
- The Costs of Living Longer
- Tech Company Employees
- Client Center
- Contact Us
Roth IRA Conversion
New rules will provide new opportunities for those who are interested in converting a traditional Individual Retirement Account (IRA) to a Roth IRA.
The Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005 allows all taxpayers, regardless of income, to make these conversions.
Roth IRAs can play an important role in retirement planning as they allow for tax-free growth and withdrawals and are not subject to required minimum distributions during the account owner’s lifetime. Clearly it is important to consider the advantages and disadvantages of the new conversion rules as part of your retirement strategy.
A summary of the new rules
- You can convert your traditional IRA to a Roth IRA regardless of your income (although contributions will remain subject to income limits).
- Any assets converted from a traditional IRA to a Roth IRA are treated as taxable income for the year of the conversion.
- If you convert your IRA to a Roth IRA in 2010, you have the option to pay the federal income tax due in two equal installments during 2011 and 2012. It’s a one-time opportunity that won’t be available for conversions after 2010.
- You can convert just part of the assets in your traditional IRA.
- If you participate in a qualified retirement plan such as a 401(k), you have the option of a direct rollover to a Roth IRA.
What issues need to be considered?
It’s a good idea to discuss these factors with your financial advisor before converting your traditional IRA to a Roth IRA.
- Paying income taxes: Can you pay for the conversion? Funds from outside a retirement plan should be earmarked for the additional tax liability. Using the assets you are converting to pay the tax could trigger early withdrawal penalties. Doing so will also reduce the assets eligible for tax-free growth and distributions available through the Roth IRA.
- Future tax rates: Tax rates today are historically low. If you believe that taxes will rise in the future, incurring the tax liability now may make the most sense.
- Consider all taxes: Remember to factor in both federal and state taxes.
- Adjusted Gross Income (AGI): Converting an IRA to a Roth IRA will cause an increase in your AGI and may place you into a higher tax bracket. A partial conversion provides flexibility in determining your AGI.
- Additional tax considerations: An increase in AGI may cause Social Security benefits to be taxed, results in phase-outs for deductions or personal exemptions, and disallows certain tax credits, among other consequences. Keep in mind that if part of your total IRA balance consists of nondeductible contributions, a portion of those conversions may be non taxable.
- Investments: Be sure to consider how you invest the assets in your Roth IRA knowing that they’ll grow tax-free and how that will affect your overall asset allocation strategy.
If you're thinking about a Roth IRA conversion, learn what you need to do in 2009 to get ready.
You should also consider getting a full breakdown of the taxes and penalties associated with a Roth IRA conversion.
But there are other special considerations for doing a Roth IRA conversion.