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Roth IRA Conversions: Don’t miss the boat

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in Small Business Tax

Q. I've read that Roth IRA conversions will be taxed favorably in 2010. Is this tax break permanent? J.S., Ronconcoma, N.Y.

A. Not exactly. The Tax Increase Prevention and Reconciliation Act of 2005, enacted in 2006, eliminates the dollar cap for Roth IRA conversions, beginning in 2010. Currently, you can’t convert a traditional IRA to a Roth in a year in which your adjusted gross income exceeds $100,000. For the 2010 tax year — and 2010 only — you can elect to pay the tax resulting from a Roth IRA conversion over the following two years (2011 and 2012).

Tip: After 2010, the dollar cap on conversions from a traditional IRA is still eliminated, but you must pay the entire tax in the year of the conversion.

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