ROTH Conversions

[GraceNY]

I've been reading many reports from various mutual fund outfits about the huge percetages of shareholders converting their traditional IRAs to ROTHs and am thinking that next few tax seasons ought to be alot of fun. Should the income be reported and tax paid on the 2010 return? Should we roll the dice and report it and pay tax on the 2011 and 2012 returns? And, what about those who converted not knowing the "tax realty" of their actions, now we'll get to learn "recharacterization." And, those who paid the taxes from the conversion instead of a side account and can't understand why they owe more taxes than what was withheld? (And a penalty for the conversion income withholdings if they were under age 59 1/2). Etc...........

I'm afraid these ROTH Conversions are being touted as the best thing since sliced bread and that many people are being "sold" on this concept. It's highly unlikely that these "1-800 # Do-It-Yourself Outfits" (i.e. Vanguard, Fidelity, etc.) are "advising" their shareholders...they just slap the disclaimer "Talk to your tax advisor" on everything and they are good to go.

Lastly, the states' treatment is going to vary from state-to-state. For instance, as of October 30, I understand that Wisconsin didn't recognize/conform to the federal, making all conversions taxable in full in tax year 2010. Additionally, the state will also subject any conversion done in 2010 in which the income is in excess of $100,000 to the early-distribution penalty of 3.3% for anyone under age 59 1/2, as well as subjecting all high-income conversions to an excess-contribution penalty of 2% (which will stay in effect for the lifetime of the conversion).

Grace

[Pacun]

I was thinking from a different angle, but I agree with most of your points.

Do you know how much money the IRS will collect in 2010, 2011 and 2012 just from those conversions?

[SueC]

Just so you are aware, Wisconsin has recently passed legislation conforming to the federal treatment of Roth rollovers.