CONSIDER THESE STRATEGIES FOR YOUR IRA

Do you own an IRA that has declined in value this past year

? At least you may be able to take advantage of certain tax-saving opportunities for IRA owners. For instance, you might convert a regular IRA to a Roth IRA when the account balance is at a low level. Alternatively, if you previously converted to a Roth, you can undo the conversion.

Unlike a regular IRA where contributions may be wholly or partially tax-deductible, contributions to a Roth IRA are never deductible. But qualified distributions from a Roth that has been in existence at least five years are entirely tax-free. In contrast, distributions from regular IRAs are taxed at ordinary income rates.

When you convert a regular IRA to a Roth, you're taxed on the amount transferred. Currently, even if your income exceeds $100,000 annually, you can do a Roth conversion. The tax liability is determined on the date of the conversion. Therefore, if your account balance has dropped recently due to stock market conditions, you can benefit from a lower tax on a conversion.

Conversely, if you converted last year and the value of your IRA was higher, it's not too late to "recharacterize" your Roth IRA as a regular IRA. This completely eliminates the tax bill. You have until October 15, 2010, to undo a 2009 conversion. Subsequently, you can convert back, but no sooner than next year.

Note that there's an added benefit for Roth conversions in 2010. The resulting tax liability may be spread over the following two years 2011 and 2012.

The tax ramifications are significant for IRA holders. For details and planning assistance, contact our office.

CONSIDER THESE STRATEGIES FOR YOUR IRA

By: Daniel Gilliland, CPA

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