New Rules for IRA Conversions

April 1, 2010 - PRLog -- Media Contact:
Brian Van Norman
919.232.5008
brian@articulon.com

New Rules for IRA Conversions
Financial Adviser Dale Merritt Explains 2010 Changes

RALEIGH, N.C. (April 1, 2010)―Dale Merritt, president of Raleigh-based Merritt Wealth Strategies (www.merrittwealth.com), discusses the new rules for converting Traditional IRAs to Roth IRAs. These changes are part of a $70 billion tax cut provision that former President George W. Bush signed in 2006.

Overview of Traditional IRAs and Roth IRAs:

With both Roth and Traditional IRAs, individuals must have “earned income” to be able to contribute. Taxpayers under age 50 can contribute $5,000 per year. Those over 50 are allowed a “catch up contribution” and can give $6,000 per year to their account.

A Traditional IRA is a savings account set up using “pre-tax” money, meaning that an individual does not pay tax on their earned income being deposited. Individuals are taxed at the time they withdraw money from the IRA. The goal with the traditional IRA is to compound and grow the money as much as it can between the account set-up date and when individuals are ready to start taking distributions.  At age 70 ½, individuals are obligated by law to begin taking “required minimum distributions,” and have to stop contributing to the account.

A Roth IRAs uses “after-tax” money. This means that tax is paid on the earned income prior to a deposit into the account. When individuals begin withdrawing funds, they do not pay tax on the qualified money. Unlike Traditional IRAs, there is no age limit on contributions to a Roth IRA.

“The new IRA rules can have long-term advantages to some individuals,” says Merritt. “Before making any decisions, you should consult an adviser or CPA to see if converting their IRA is beneficial.”

Original Roth IRA Conversion Laws:

• Individuals were permitted to convert a traditional IRA to a Roth IRA, with the following  conditions to consider:

o Income limits determined eligibility to convert – tax payers with an adjusted gross income of more than $100,000 (single or married) were not eligible to make the conversion. Also, taxpayers who earned $110,000 or more ($160,000 for married joint filers) were not eligible to contribute to a Roth IRA.

o Paying taxes on converted money – for traditional IRAs, money could be added to an account on a pre-tax (tax deductible) or an after-tax basis. To convert from a traditional IRA to a Roth IRA, individuals had to pay the federal income taxes on any pre-tax contributions they had made, and on the amount the account had grown in value.

2010 Provisions:

• Taxpayers with modified adjusted gross income of more than $100,000 are now eligible to convert a traditional IRA to a Roth IRA. Merritt notes that there are still some eligibility limits:

o Taxpayers whose filing status is married filing jointly with a modified adjusted gross income of $177,000 or greater are not eligible to contribute to a Roth IRA.

o For those with a filing status of single, head of household, or married filing separately and not living with their spouse at all in 2010, if their modified AGI is $120,000 or greater.

o If a taxpayer’s filing status is married filing separately and they lived with their spouse at any time during the year, they can not make a contribution if their modified AGI is $10,000 or more.

• The income taxes due on the 2010 conversion can be divided over two years (2011 and 2012), helping to lower the tax burden. Conversions in years after 2010 will be included in income during the tax year the conversion if finalized.

“What these provisions do is give higher income taxpayers the opportunity to pay taxes now and have tax-free income in the future, after giving their money a chance to compound for several years,” adds Merritt. “You can really argue both sides of the equation when it comes to converting to a Roth IRA; the key is to not rush into the decision and to take time to speak to an investment adviser.”

Information on IRS rules for Roth IRAs can be found at www.irs.gov/publications/p590/ch02.html.

About Dale Merritt:
Dale Merritt is president of Merritt Wealth Strategies. Having grown up in Zebulon, Dale is eager to provide financial opportunities to the community in which he was raised, offering real estate and retirement planning, as well as other financial services to eastern Wake County. Merritt is certified in long-term care, has several securities registrations including Series 6, 7, 63 and 66, as well as a Long-Term Care Insurance license and a Life Insurance license. He is a member of the American Association for Long-Term Care Insurance. Merritt believes in remaining active in the community. In addition to being part of the Zebulon Chamber of Commerce and the Knightdale Chamber of Commerce, he maintains active membership in the North Carolina Cattlemen's Association, the Appalachian State University Triangle Alumni Chapter and the Little River Chapter of Ducks Unlimited. He and his wife, Katie, also volunteer with the Paw Prints Animal Rescue in Garner. For more information, call 919.782.0033 or 919.816.2592, or visit www.merrittwealth.com.

About Merritt Wealth Strategies:
Merritt Wealth Strategies is a father-son collaboration of Les and Dale Merritt formed in 2009 to provide investment, insurance and retirement planning services to residents in the Triangle and eastern Wake County. Merritt Wealth Strategies is located at 3356 Six Forks Road, Raleigh, NC 27609. For more information, call 919.782.0033 or 919.816.2592, or visit www.merrittwealth.com.

"Securities and Investment Advisory Services offered through FSC Securities Corporation. Member FINRA/SIPC and a registered investment adviser. Merritt Wealth Strategies is not affiliated with FSC Securities Corporation or registered as a broker-dealer or investment adviser. The views expressed are not necessarily the opinion of FSC Securities Corporation."

* The views expressed in this newsletter are not necessarily the opinion of SagePoint Financial Inc. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results.

* If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted Traditional IRA contributions and on all earnings. A conversion may place you in a higher tax bracket than you are in now. Because Roth IRA conversions may not be appropriate for all investors and individual situations vary, we suggest that you discuss tax issues with a qualified tax adviser.

* A Roth IRA distribution is qualified if you’ve had the account for at least five years and the distribution is made after you’ve reached 59 ½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses. Distributions made prior to age 59 ½ may be subject to federal income tax penalty.

* The hyperlinks included in this newsletter are provided as a convenience and are for informational purposes only, and are not part of FSC Securities, Inc.  The link to outside Web sites does not mean that FSC Securities Inc. endorses or accepts any responsibility for the content or use of the Web site.

* Media contact Brian Van Norman and his related contact information are not affiliated with FSC Securities Corporation.