Your point above is interesting because most people did not make gains on investments from 2008 to 2009, in fact they lost a huge chunk of their investments. So in fact from your tax return for 2010, you would be declaring a capital loss on your non-deductible IRA investments from 2006 to 2010 (assuming you did incur a loss). Here’s a good example from http://www.definerothira.com

According to the IRS, you have a tax loss from your traditional IRAs when the following conditions are met:

* You liquidate all the traditional IRAs set up in your name.

* Your total tax basis in the accounts — which equals the sum of your nondeductible contributions (if any) — exceeds the liquidation proceeds. Since you only get tax basis from nondeductible contributions, it’s fairly unlikely that you’ll have a tax loss even if you’ve lost your shirt. However, it can happen (as example 1 below illustrates)

http://www.irs.gov/retirement/participant/article/0,,id=188232,00.html

–Tom

Question 2: Is this IRA Roth Conversion only possible in 2010?

Thanks,
Tom

Joe

Whether the conversion is right for you at all depends on a number of variables, current tax rate, current savings rate the larger factors.

Joe

Any advice will be appreciated.
Thanks for the great thread…it is one of the better ones that I have come across

I pray for people that are only retiring with $400k in retirement assets. Actually, I pray for them and for me, because I know that the government will probably tax me more to help pay for the fact that so many people live for today and do not save enough.

We are on a slow slide towards socialism. With 42 million households not even paying income tax, there are fewer and fewer people to shoulder the burden. I look for a tax on wealth to be proposed in the not-too-distant future. Imagine the beauty of it — “we will only tax those horrible rich people with $1 million in retirement accounts. And we will only tax that $1 million at 1%. And we will only do it this one time.” It is a bit like 1913 when our government adopted the income tax system and promised to tax the top 1% of earners only. Look where we are now.

I think the real beauty would be if the government decides to keep making it attractive to save or convert into Roth-like accounts. They get all this great tax revenue now. Then they can pull a switcheroo and adopt a national sales tax or VAT. Then they could tax all the Roth income through your consumption. I shouldn’t talk about that too much. It might give them ideas.

Sorry for the rant, but my point is basically that there is no way to really predict what our government is going to decide to do in the future. Since we really don’t know, we should try to diversify the way we “think” our asset growth will be taxed in the future. Put money into every bucket. Maybe then you will have at least some control.

Rome fell when the people figured out they could vote themselves breads and circuses. I hope the people of the US wake up soon.

Todd

I hadn’t checked the thread in a while. I love the fact that this got everybody’s gears a turnin’.

A basical rule of thumb (and remember that my thumb is probably bigger than your thumb so there really are no rules) is to try to get your total retirement assets to look like the following:
-30% taxable (nonqualified investments)
-30% nontaxable (Roth IRA, Roth 401k, munis, cash value life, tax credit realestate, etc…)
-40% tax deferred (pension, IRA, 401k, 403b, etc…)

If your current pool doesn’t look like this because you have mainly been adding to your 401k (like almost everyone) and you cannot contribute to a Roth IRA, then a conversion may just be the cup of tea for you. Talk to a tax advisor.

Take Care,
Todd

If you have $90,000 today in pre-tax IRA, and you accumulate $10,000, post-tax, you can still convert a a portion of the money to Roth in 2010. True, you’ll owe a larger tax bill, but the advantages of the Roth IRA are still likely to be worth the conversion.

This depends, of course, on your estimate of your tax rate in retirement.

The good news is that 401(k) plans are not included in the IRS calculation. So, if like many people, you have pre-tax money in a 401(k), you can still create a post-tax IRA and do the conversion in 2010.

Remember, however, the Roth IRA is definitely a bet on future tax rates. You end up paying tax today instead of when you retire, which only makes sense if your tax rate in retirement is higher than it is today.

Adam

For example, I rolled my 401(k) to an IRA. Say it’s $100,000.
I also have $25,000 in post tax IRA deposits over the past 6-7 years.

If I convert in 2010, any money is treated as 80% pretax, 20% post tax money.
I’d be better off stuffing that pretax IRA money back into my new 401(k) if the invest choices are ok. Either way, nothing is simple.

Joe

I don’t think it matters when the assets were contributed – you can rollover any IRA to Roth if you qualify, regardless of when it was created or when you contributed to it.

Consult a professional here to be sure, but the law seems to discuss conversion without regard to contribution date.

Adam

Adam

if I do not have an IRA or Roth IRA now – is it in my best interest to set up an IRA no and convert it to a roth in 2010. I make too much money to open a Roth IRA now

Thanks

From my understanding, the limit for conversion to Roth and contribution to a Roth IRA are not necessarily the same thing. I can’t verify whether or not the income limit in 2010 will be repealed for contribution, but right now, the income limit will be repealed for conversion.

That being said, given the uncertainties around the 2008 Presidential election, there is more than enough time for a new President & Congress to repeal this loophole before it happens.

Adam