Taxpayers with certain investment accounts are getting a break next year.
Starting in January, converting a traditional IRA into a Roth IRA won’t only be for taxpayers earning $100,000 or more. The government eliminated the income cap to help out taxpayers who saw their investments sink.
One of the major differences between a traditional and Roth IRA is when the money is taxed. In a traditional IRA, taxes are paid when it’s withdrawn. Money in a Roth account is taxed upfront, when it’s deposited. The conversion will cost you, but IRS spokesman Dan Boone in Nashville says it can be spread out over time.
“When you do what’s called a rollover or a conversion from traditional into a Roth IRA, that amount suddenly becomes taxable income to you, but the resulting taxes can be spread out over 2011 and 2012.”
The benefit of converting is that taxes you’ll pay now will likely be lower than in the future.
Boone also says there’s no penalty for taxpayers who choose to spread out their payments over two years.
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