Roth Conversions

Last year, many financial advisors recommended that their clients convert IRAs to Roth IRAs after the $100,000 maximum adjusted gross income requirement was removed. The high cost of Roth conversions, however, caused many individuals to balk at using this financial planning tool.

Individuals who failed to do a Roth conversion last year may want to consider giving a conversion a second look. The current tax rates make converting now financially beneficial, and any appreciation after the conversion will be income tax free.

If an investment’s performance declines in value, an individual can re-characterize. Individuals who converted last year have until October 15 of this year to re-characterize. After an individual has re-characterized a conversion, the individual cannot convert the same assets again until the year after the original conversion or thirty days after the conversion, whichever is later.

See Deborah L. Jacobs, Smart Moves For Battered IRAs, Forbes, Aug. 5, 2011.