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Restrictions on IRA Conversions to Change in 2010

Published December 23, 2009

Starting January 1, 2010, the rules governing conversion of traditional IRA or 401(K) accounts to a Roth IRA will change. Through the end of 2009, only people with a modified adjusted gross income of less than $100,000 are eligible to convert traditional accounts to a Roth IRA. The income restriction will be lifted in 2010, and all investors will be able to convert funds.

There are differences between a Roth IRA and a traditional IRA that are worth noting. Contributions to, and withdrawals from, each type of IRA are taxed differently. Contributions to a Roth are never tax deductible, while contributions to a traditional IRA may not be tax deductible. Additionally, qualified withdrawals from a Roth IRA are not subject to income or capital gains taxes. This distinction means that Roth IRAs provide tax-sheltered investment growth, while traditional IRAs provide investment growth that is only tax-deferred.

An age limit on contributions is another distinction between traditional and Roth IRAs. There are no age limits on contributions to a Roth IRA. However, contributions can only be made to a traditional IRA until the year the investor reaches 70.5. Individuals wishing to continue making contributions to an IRA account well into retirement should consider a Roth.

There are estate planning implications in deciding which IRA is appropriate. If the goal of an estate plan is to maximize assets and disbursements to beneficiaries, a Roth IRA offers unique estate planning benefits. Because a Roth IRA does not require individuals to make distributions from the account, it could grow more than an account might under traditional IRA rules.

This change in the rules will open new options for some investors. Individual investors should consider both the costs and benefits of conversion specific to their financial situation before making a decision. Consult an estate planning professional about any questions concerning account conversion.

Bernard Krooks is a New York Estate Planning lawyer with offices in White Plains, NY and New York, New York. To learn more, visit

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