To Convert or Not To Convert: Advantages and Pitfalls of Roth IRA Conversions

SUMMARY: Annually since 1998, many taxpayers evaluate the tax and non-tax benefits of contributing to a Traditional IRA and a Roth IRA. Starting this year, a new evaluation is being considered by even more. This year for the first time, high-income taxpayers with traditional IRAs have a unique opportunity to convert their Traditional IRAs to Roth IRAs irrespective of level of income. As a result of the Tax Increase Prevention and Reconciliation Act of 2005, or TIPRA, all taxpayers are allowed to convert Traditional IRAs to Roth IRAs beginning in 2010 at a current income tax cost. Prior to 2010, conversions were only allowed for taxpayers earning less than $100,000 a year.

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