IRAs: To Convert or To Not Convert... Tax Tip of the Week

That is a great question! Thinking of converting your Traditional IRA to a Roth IRA in 2010?  You may have heard that this conversion is possible in 2010 regardless of your taxable income.  If you, like many individuals, were forced to make non-deductible IRA contributions in the past due to income limitations; you may be tempted to convert those accounts to Roth accounts next year.However, this may turn out to be a costly mistake.  When making a conversion to a Roth IRA you must consider the value of ALL your IRA accounts, not just the non-deductible IRA accounts you may have.  Only a pro-rata share of the basis is calculated to determine the taxable income.Example:

	BASIS	MARKET VALUE
Non-Deductible IRA	$24,000	$30,000
All other IRA Accounts	0	$250,000

In this scenario, the taxable portion of converting the $30,000 non-deductible IRA to a Roth IRA would be $21,429 (.0857%) not the $6,000 (30,000 – 24,000) that you might have expected.There are other reasons to consider a Roth conversion such as estate planning and legacy planning issues.  We want to ensure you understand the tax consequences of your decision.Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. ...until next week.