Roth IRA Conversion

The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) eliminated the $100,000 adjusted gross income ceiling for converting a regular IRA to a Roth IRA for tax years after 2009. A conversion is treated as a taxable distribution, but is not subject to the 10 percent early withdrawal penalty. Taxpayers who convert in 2010 can elect to recognize the conversion income in 2010 or average it over the next two years.

Although this provision in TIPRA does not extend to 401(k) plans, nothing would apparently prevent Roth IRA conversions of traditional IRAs that have received proceeds of 401(k) balances when an individual leaves employment. Nor does the new law prevent high-income taxpayers from contributing to nondeductible traditional IRAs now in anticipation of converting to Roth IRAs in 2010. Additionally, 2010 is also the last year before the lower individual marginal tax rates in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) sunset.

The older an individual is, the more likely that he or she is relying primarily on Social Security for his or her retirement income. Social Security accounts for more than one half of the retirement income of individuals age 85 and older, according to the Employee Benefits Research Institute. In comparison, Social Security accounts for roughly one-third of the retirement income of individuals age 65 to 69.