Roth IRA Conversion

At StateTrust we have the knowledge, resources, and personal support to assist you in making appropriate decisions about an IRA conversion.

Roth IRA conversions in 2010

A Roth conversion is when you take savings from a Traditional, SEP or simple IRA or employer-sponsored retirement plan (like a 401k, 403b or 457b) and convert them to a Roth IRA.

  • The $100,000 modified adjusted gross income and tax-filing status limits have been removed.
  • If you file your taxes as Married Filing Separately, you are now eligible.
  • For 2010 conversions only, you may elect to pay all of your taxes in 2010, or you can choose to pay 50% of the taxes on income resulting from the conversion with your 2011 tax filing and 50% with your 2012 tax filing.
  • If you elect the two-year tax deferral on your conversion—and take a distribution before 2012—you will increase the taxes that are due.

Key benefits of a Roth IRA

The key benefits of a Roth IRA are:

  • Distributions are tax-free and penalty free after age 59½, as long as you hold the Roth IRA for at least five years.
  • No required minimum distributions (RMDs) at age 70½, as is the case with a Traditional IRA.
  • Assets can be passed on tax free to your heirs.
  • Flexibility to manage taxable retirement income because a Roth IRA gives you full flexibility as to distribution timing.

The graphic below illustrates how much the federal government withheld from one hypothetical investor following a long-term investment strategy. A sound retirement plan  should take into account this circumstance.  From 1926 to 2009, the average return on stocks after taxes was 7.7%, compared to 9.8% before taxes.

Source: StateTrust’s analysis of Morningstar data.  Performance shown is not indicative of the performance of any specific investment.  An investor cannot invest in an index, such as the one these graphs are based on.  Past returns are no guarantee of future performance.  These returns are based on historical information, from sources believed to be reliable, but accuracy cannot be guaranteed, and these returns can vary in future time periods.