Tax Tip

It’s Friday night and I don’t want to write a long post. The tax tip below will outline a concept, no phase out numbers or anything like that. If the idea has merit for you, call your friendly accountant to facilitate the strategy.

The tax code has a juicy nugget available for 2010-11. Anyone, regardless of income, can convert a traditional IRA to a Roth IRA. If you don’t know, the Roth IRA grows tax free and doesn’t require distributions at 70 ½.

Here is my tax tip: If your income is too high to make a Roth IRA contribution for 2009, put the money in a non-deductible traditional IRA instead. Convert this IRA to a Roth in 2010. This allows you to get additional money into a Roth for tax-free growth. The original money is not taxed on the conversion.

How about a two-fer Friday? Consider converting all traditional IRAs in 2010-11. If the value of your IRA is down, you are converting at a discount. You also lock in today’s tax rates. My crystal ball says tax rates are going up over the next years to pay for additional government programs and to balance a budget $1.5 trillion in the red.

Chew on it over the weekend and then decide. See you Monday.