The recently passed tax law, the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), eliminates the $100,000 modified adjusted gross income ceiling and the joint filing requirement for married individuals for converting a traditional IRA to a Roth IRA for tax years after 2009.
While a conversion is treated as a taxable distribution, it is not subject to the 10% early distribution penalty. Taxpayers converting in 2010 can recognize the conversion income in that year or average it over the following two years. Why might this change be attractive to high income taxpayers? Earnings are distributed tax free, and there are no required distributions at age70 ½. Click here to access MSN Money’s Roth conversion calculator.