written by Patti Stoner

Patti Stoner head shot

Sometimes there can be silver linings in a down economy, but you have to be paying attention to see them.  Could your IRA be one of those silver linings?  Here are 5 tips that you should consider: 

TIP #1 Convert to a Roth IRA

Have you ever considered a Roth IRA?  Do you have funds in a traditional IRA but don’t want to pay the tax for converting it to a Roth IRA?  Now may be the time to do it.  With your investments in your IRA valued much lower than they were a year ago, you should consider converting some or all of it into a Roth IRA.  If your adjusted gross income exceeds $100,000, you need to be planning your strategy for 2010. See below. 

TIP #2  Already converted in  2008?

Did you convert your traditional IRA to a Roth IRA in 2008 when the stock market was much higher?  Did you file an extension for the 2008 return until 10/15/09?  You may still have time to recharacterize the conversion and save yourself the tax.  You could then make the conversion in 2009 while the market is still down (though you would have to wait at least 30 days).  You will have lowered the tax AND deferred that tax for another year!

TIP #3  Required Minimum Distributions for 2009

The Required Minimum Distribution (RMD) for taxpayers over age 70-1/2 is waived for 2009.  By not taking an IRA distribution, perhaps your income would fall below $100,000, thus qualifying you for a Roth conversion. 

TIP #4  Charitable Distributions from IRAs in 2009

Does a charity close to your heart need funds in this down economy?  If so, you should know the provision allowing direct transfers to charities was extended through 2009.  You do not have to include the IRA distribution in your income (which helps if you are trying to monitor your AGI).  The charitable contribution directly offsets this income (rather than claim it as an itemized deduction).  This qualified charitable distribution cannot exceed $100,000 and you must be at least age 70-1/2.

TIP #5  2010 Roth IRA conversions

If your adjusted gross income exceeds $100,000, you need to be planning your strategy for 2010.  Under TRRA’06, the AGI limit is eliminated in 2010.  For 2010 only, you can recognize the conversion income ratably in 2011 and 2012, which means NO tax on the conversion in 2010, and half the tax is due in each of the years 2011 and 2012.  Any conversions after 2010 are taxable in full in the year of conversion and the AGI limit is eliminated.

We would be pleased to look at your particular situation to see if any of these ideas are suitable for you.