A Few Notes About Year-End Retirement Planning…

Required Minimum Distributions resume in 2010
You will recall that the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) waived 2009 required minimum distributions (RMDs) from Individual Retirement Arrangements (IRAs), SEPs, SIMPLEs, SARSEPs, 401(k), Profit-Sharing, Money Purchase Pension, 403(b), and certain 457 retirement plans. The waiver for 2009 was optional, but the required distributions resume in 2010. This change results in all sorts of questions about how to calculate the 2010 distributions. If a RMD applies to any of your clients, make sure that you coordinate with their tax advisor and/or plan trustee or IRA custodian to work this out properly before the end of the year.

2010 Traditional IRA conversions to a Roth IRA
Beginning in 2010, anyone, regardless of their income level, can convert a Traditional IRA to a Roth IRA. Any portion of the converted IRA that is not attributable to an after-tax contribution is taxable upon conversion as ordinary income. However, for conversions that take place in 2010, the tax liability attributable to the conversion can be spread out over the 2011 and 2012 tax years. This deferral of tax liability is not likely to be extended. In all cases, the benefits of converting to a Roth should be carefully evaluated – conversions are not beneficial to many individuals.

By the way, there does not appear to be any reason why a person whose income is too high to contribute to a Roth IRA could not contribute to a non-deductible Traditional IRA and then convert to a Roth IRA. However, before proceeding, do check with a qualified tax advisor.

Roth Conversion Extended to Employer Accounts
The Small Business Jobs and Credit Act passed earlier this year permits 401(k), 403(b), and governmental 457(b) participants to roll all, or a portion, of their account balances into an employer-provided Roth account (as long as the employer offers a Roth option). Beginning in 2011, state and local government 401(k), 403(b) and governmental 457(b) plans will be able to offer a Roth option.

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