Rules changing for Roth IRA conversions in 2010
October 28, 2009
Important changes in 2010 make Roth IRA conversions available to everyone. This is good news if you want to roll over and convert the non-Roth portion of your company retirement plan account into a Roth IRA, or convert a traditional IRA into a Roth IRA. The pretax contributions and earnings you convert will be taxed, but withdrawals from Roth IRAs may be tax-free.
- $100,000 income limit eliminated. Beginning in 2010, conversions are allowed no matter how much you make.
- No tax filing status restriction. You can convert to a Roth IRA even if you’re married and filing taxes separately.
- Taxes on conversions in 2010 can be deferred. You can pay half of the applicable taxes on a 2010 Roth IRA conversion on your 2011 tax return and the other half on your 2012 return. Normally, you have to pay the full amount for the year the conversion takes place.
Reasons to consider a Roth IRA conversion
- Tax-free withdrawals. You’ll have to pay taxes on the taxable portion of the amount you convert into a Roth IRA, but you won’t have to pay taxes on subsequent qualified withdrawals.*
- No required minimum distributions (RMDs). Roth IRAs are not subject to RMDs during your lifetime, unlike retirement plan accounts and traditional IRAs. There’s a stiff penalty if you fail to take an RMD.
Find out more
Please contact your financial professional or tax adviser for assistance. You can also read more about IRA rollovers, find answers to frequently asked questions, or talk to an American Funds IRA specialist.
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- Withdrawals from a Roth account are tax-free if it was set up at least five years before, and if the account owner is at least 59-1/2 years old, disabled or deceased. For nonqualified distributions, earnings are taxable and may be subject to a 10% early withdrawal penalty.
Investors should carefully consider the investment objectives, risks, charges and expenses of the American Funds. This and other important information is contained in each fund’s prospectus and/or summary prospectus, which can be obtained from your plan’s financial professional or downloaded and should be read carefully before investing.