November 3, 2010

Dear Client,

This year is the first in which taxpayers may convert funds in regular IRAs (as well as qualified plan funds) to Roth IRAs regardless of their income level. What's more, taxpayers have the choice of paying the entire tax on the conversion when they file their 2010 returns, or deferring the tax hit on the conversion to the 2011 and 2012 tax years.

This is a great opportunity for you to pay taxes once on your IRA at present rates and live off tax free income for as long as your Roth IRA lasts.

Why make an IRA-to-Roth IRA conversion?

Roth IRAs have two major advantages over regular IRAs:

(1)Roth IRA distributions are tax-free if they are "qualified distributions,"

(2)Roth IRAs aren't subject to the RMD rules.

A similar comparison can be made to distributions from qualified retirement plans, such as 401(k)s and 403(b)s.

There are other tax advantages: Because distributions from Roth IRAs are tax-free (if they are qualified distributions), they (a) may keep a taxpayer from being taxed in a higher tax bracket that would otherwise apply if he were withdrawing taxable distributions, (b) don't enter into the calculation of tax owed on Social Security payments, and (c) have no effect on AGI-based deductions. What is more, the benefits flow through to beneficiaries of Roth IRA accounts, who also can make tax-free withdrawals from such accounts (they are, however, subject to the same annual post-death required minimum distribution rules that apply to beneficiaries of regular IRAs).

Who should make IRA-to-Roth IRA conversions?

We believe everyone should review his/her personal facts and consider a complete or partial conversion based on the results of the complex calculations. The decision as to whether or not to make a conversion is not one that can be made in a vacuum. Many factors come into play and a careful analysis of your individual situation is warranted.

We hope you will reach out to us to assist you with that analysis and the unique income and estate tax planning opportunities available at this time. Please call us at 203.967.2231 to schedule an appointment if you would like to take a closer look for yourself.


Joseph M. Dowling, CPA
President, The Dowling Group

Sean M. Dowling, CFP, EA
VP, The Dowling Group