However, current tax law also prohibits recharacterization (reversal) after a Roth IRA conversion
. The amount that's converted will generate a tax bill for this year.
Under prior law, a Roth IRA conversion
could be reversed, in part or in full, until October 15 of the following year.
The TCJA eliminated a client's ability to recharacterize a Roth IRA conversion
, which will mean that clients should engage in a much more careful analysis of whether converting to a Roth makes sense.
To circumvent this, investors will sometimes put money into a traditional IRA that has been fully taxed and then immediately do a Roth IRA conversion
, which would not be taxed.
The table does not take into account a Roth IRA conversion
or whether a particular state taxes retirement income because those factors vary greatly.
If the taxpayer is currently in a lower tax bracket than he or she expects in later years, the taxpayer will usually want to do a Roth IRA conversion
. Also note that the conversion can be done in stages so that it does not push the taxpayer into a higher tax bracket, the net investment income tax, or the PEP/Pease limitation.
I approached my clients again with the Roth IRA conversion
very similar to a Roth IRA conversion
. There are, however, two very important differences: A plan participant must be eligible to take a distribution from the plan.
This can be a very important advantage for a Roth IRA conversion
, particularly if the plan to be converted holds volatile assets.
* Fraudulent Conversion and Transfer Laws--Under Florida law, a conversion by a debtor of a nonexempt asset to an exempt asset is a fraudulent conversion as to a creditor, which may be set aside by such creditor "whether the creditor's claim to the asset arose before or after the conversion of the asset, if the debtor made the conversion with the intent to hinder, delay, or defraud the creditor." (8) The relevant queries are as follows: 1) Does the conversion to a Roth IRA constitute a "conversion" to which Florida's fraudulent conversion law applies, and 2) with regard to creditors' claims arising before and after the Roth IRA conversion
, did the debtor engage in the conversion with the actual intent to hinder, delay, or defraud such creditors?
The availability of the Roth IRA conversion
has greatly enhanced the conversation about charitable intent and provides the opportunity for the advisor to separate from the traditional planning pack by leveraging the tax deductions against taxes owed.
A savvy long-term Roth IRA conversion
plan could create a tax-free dynasty in which a family could measure their benefits in the millions.