ROTH rollover for the rich?

[nun]

What's this I hear about the new tax bill that allows ROTH conversions if you have over
$100k in AGI? Also if you're in that kind of tax bracket why on earth would you want to convert to a ROTH and pay 28% tax when you could wait to ER and probably pay a lot less tax?

 

[brewer12345]

I think it was strictly a legislative game. The rules said that a tax cut bill over $70B would have left the bill vulnerable to a filibuster, so the majority had to fit what they wanted into the 70B box. They couldn't fit all of the giveaways they wanted into the box, so they had to include some offsetting things that wuld raise tax revenue. So they allowed Roth conversions by those with over $100k income because the way things get calculated this would supposedly raise a certain amount of revenue. Of course, nobody in their right mind would convert at that tax bracket, but thsi is under Congressional rules, so fiscal reality is a problem for the "little people" to sort out.

 

[Gumby]

..

 

[brewer12345]

Thanks for the explanation.  I was similarly baffled.  But I bet we will see this reported in the press as one of those giveaways to the rich.

Probably. The issue I have with that is the idiots in the media and Congress (and elsewhere) who seem to automatically equate high income with being "rich". Clueless.

I actualy don't have any problem with the extension of the dividend and cap gains tax cuts or the band-aid for AMT. The problem is the budget imbalance. Gotta trim spending, raise taxes, or both. The supply side fairy seems to have gone fishin', so it is time to pull up our collective pants and act responsibly. Since Congress appears unable or unwilling to do so, I suspect we will end up seeing a Democratic Congress cleaning up the mess the Republicans made and then getting blamed for being "tax and spend" communists, or some such. :

 

[youbet]

Probably.  The issue I have with that is the idiots in the media and Congress (and elsewhere) who seem to automatically equate high income with being "rich".  Clueless.

getting blamed for being "tax and spend" communists, or some such.  :

Wouldn't they have to be "tax and not spend" in order to clean up the mess?

 

[d]

if you're in that kind of tax bracket why on earth would you want to convert to a ROTH and pay 28% tax

the prospect of very large RMDs could well lead one to convert

strictly a legislative game

absolutely, otherwise why the 2010 date

we will end up seeing a Democratic Congress cleaning up the mess

suggestiong they won't be "tax and spend"? ??

 

[brewer12345]

Wouldn't they have to be "tax and not spend" in order to clean up the mess?

They probably won't have much choice except to do exactly that. Won't stop the nutballs from screaming about tax & spend, though.

 

[doushioukanaa]

Not until 2010...

According to today's Wall Street Journal:

Another measure in the tax bill designed to increase government revenues is a provision that, starting in 2010, will eliminate income limits on converting traditional individual retirement accounts into Roth IRAs. With a Roth IRA, you don't get a tax deduction for your contributions. But the money you contribute grows tax-free and generally can be withdrawn tax-free, with some restrictions. Under current law, only taxpayers with income of $100,000 or less may convert part of all of their traditional IRA into a Roth IRA.

The measure, if enacted, would be "a windfall for high-income taxpayers," says Len Burman, director of the Tax Policy Center, a joint venture of Urban Institute and Brookings Institution.

Even though this provision won't be effective until 2010, some investors may want to take action now by making nondeductible contributions to traditional IRAs, tax advisers say. In 2010, those IRAs could then be converted into a Roth IRA - unless, of course, Congress changes the rules. There's always a possibility Congress might tweak the law again, says Clint Stretch, a principal at Deloitte Tax LLP in Washington

 

[Martha]

Posted about the Roth conversion income limits in this thread: http://early-retirement.org/forums/index.php?topic=7547.0

The change doesn't go into effect until 2010. Wanna bet a repeal/change before then?

 

[nun]

I look at the increase in government spending coupled with the reduction in taxes and the growing deficit and I'm lost for words. Maybe the strong growth of the US economy over the last year has something to do with tax cuts, but any added tax revenue that might be associated with this tax cutting induced growth ( and I'm no convinced the two are actually related) is being more than consumed by the government's addiction to spending. The unfortunate thing is the US government has caught the general population's love of spending money that they don't have. This can be done to a sensible extent, but when I hear economist say that as long as we keep spending we will generate more growth and hence revenue all I can think of is a big balloon expanding and expanding, that will explode one day and then we'll be looking at the remnants of something that was once good.

Let's face it most people don't own funds and shares outside of their 401ks, heck less than 50% of workers are in 401ks or 403bs, so the 15% capital gains rate doesn't affect them unless they sell a house. The 15% rate is a boon to people with after tax captial gains, and this tends to be the upper middle class and the rich, which is a shrinking percentage of the population. Whenever I find myself resenting a tax bill I just remember that I'm lucky enough to have enough money to pay that much tax. I'd rather worry about paying tax than how to feed a child or how to pay for health care.....yes I am a proud socialist in favor of a truely mixed economy.

 

[retire@40]

...So they allowed Roth conversions by those with over $100k income because the way things get calculated this would supposedly raise a certain amount of revenue.  Of course, nobody in their right mind would convert at that tax bracket, but thsi is under Congressional rules, so fiscal reality is a problem for the "little people" to sort out.

Many "rich" people won't pay much tax on the conversion, even if they are in the highest tax bracket since their traditional IRA contributions may have been non-deductible to begin with. They would only be taxed on the amount above basis.

 

[nun]

Posted about the Roth conversion income limits in this thread: http://early-retirement.org/forums/index.php?topic=7547.0

The change doesn't go into effect until 2010. Wanna bet a repeal/change before then?

This latest tax bill has nothing to do with taxation really. Its just being used to get immigration legislation out
of the headlines and in hopes of increasing the approval rating of the Republican Congress prior to the November elections. Of course if the Dems were in power they'd be doing the same, but with different legislation

 

[work4beer]

What's this I hear about the new tax bill that allows ROTH conversions if you have over
$100k in AGI? Also if you're in that kind of tax bracket why on earth would you want to convert to a ROTH and pay 28% tax when you could wait to ER and probably pay a lot less tax?

Well, current income tax rates are probably the lowest they will ever be. There's nowhere to go but up, especially if we want to start reducing the deficit or implement universal health coverage. And, there's a lot of us out there with non-deductible IRAs that we would not pay a lot of tax on to rollover to a Roth.

This is, of course, assuming that Roth's stay tax-free forever. I wouldn't be surprised if a surcharge shows up in the future (probably when I start withdrawing). I think it's best to hedge your future tax bets by having 50/50 traditional/Roth style accounts.

Mark

 

[nun]

Many "rich" people won't pay much tax on the conversion, even if they are in the highest tax bracket since their traditional IRA contributions may have been non-deductible to begin with. They would only be taxed on the amount above basis.

I imagine most of the money in IRAs is from 401k rollovers so the money will be tax deferred and if you are in the 28% tax bracket it would be nuts to do the ROTH conversion if you expect to be in a lower tax bracket at retirement. My plan is to reduce the income I need by buying a house outright (no mortgage) and live off a combination of a part time job and after tax investments and do a ROTH conversion when I'm in the 15% tax bracket.