Significant tax changes are on the horizon! The Bush tax cuts (extended in 2010) are set to expire on 12/31/12. This could result in higher marginal tax rates, higher capital gains tax rates, higher tax rates on dividend income, and higher estate tax rates. In addition to possible tax increases, many taxpayers face the potential of phased out itemized deductions and personal exemptions. Nothing is certain yet, but so far, it doesn’t look good.
Enough with the bad news. Sitting down to prepare my own taxes, I thought about some good news I can share with you. In 2010, there was a lot of talk in the financial press about the benefits of moving money from a Traditional IRA to a Roth IRA (a Roth conversion). This was supposed to be a one-time event with the ability to defer 50% of the income tax due in 2011 and the other half in 2012. The reason this was such a big deal is that prior to 2010, Roth conversions were only available to taxpayers earning less than $100,000 per year.
Interestingly, this “one-time” opportunity is still available, but hasn’t received much press recently. If you have money in a Traditional IRA and did not convert in 2010, you should give us a call. We do not expect the government to leave this window open forever. Converting to a Roth is not the right move for everyone, but we can help you decide if it is right for you. The long-term advantages of a Roth IRA are significant:
-no required withdrawals
Depending on your situation, there may also be some advantages to speaking with us prior to filing your 2011 tax return.