I read an article today about converting a regular IRA into a Roth. It said that the taxes owed can be split between 2011 and 2012. Did they mean paid in 2011 and 2012, or on returns for 2011 and 2012 (which would be 2012 and 2013)? Is splitting the tax optional? If I expect to pay a higher tax rate in the later year, could I pay it all early?
If you co vert from a traditional IRA to a Roth IRA in 2010, then by default, you will recognize half the conversion income in 2011 and half in 2012.
But you can elect to recognize all ofthe income in 2010 instead.
If filing jointly and each spouse converts, each spouse can make a separate election.
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So what happens if you convert in 2010, do not elect to recognize all income in 2010, and then die?
If death is in 2010, all the conversion income is recognized in 2010.
If in 2012, half in 2011 and half in 2012.
But what if you die in 2011?
Do you have to amend to recognize all in 2010? Do you recognize all in 2011? Is the 2012 portion IRD to the beneficiaries?
Or something else?
One thing to keep in mind is that the Bush income tax cuts are set to expire in 1/1/11. That means a 3% to 5% increase depending on what marginal bracket you are in. You might want to pay your conversion tax in 2010 then.
Congress MIGHT permanentize some of the tax cuts for the 2010 elections. On the other hand this would be a stealth tax increase the current administration needs and can fully blame on the previous administration. Count on reality, not hypotheticals.
Some people would call you a cynic, I would call you a realist.
All in 2011. IRC 408A(d)(3)(E)(ii)
Phil Marti Clarksburg, MD
Thanks Phil. That says it all.
408A(d)(3)(E)(ii) Death of distributee.408A(d)(3)(E)(ii)(I) In general. If the individual required to include amounts in gross income under such subparagraph dies before all of such amounts are included, all remaining amounts shall be included in gross income for the taxable year which includes the date of death.
408A(d)(3)(E)(ii)(II) Special rule for surviving spouse. If the spouse of the individual described in subclause (I) acquires the individual's entire interest in any Roth IRA to which such qualified rollover contribution is properly allocable, the spouse may elect to treat the remaining amounts described in subclause (I) as includible in the spouse's gross income in the taxable years of the spouse ending with or within the taxable years of such individual in which such amounts would otherwise have been includible. Any such election may not be made or changed after the due date for the spouse's taxable year which includes the date of death.BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.