|Advanced Roth IRA 2010 Conversion Calculator|
Beginning in 2010, you can convert a traditional IRA to a Roth IRA regardless of income level or filing status. With a
Roth conversion, the taxable portion of your traditional IRA (deductible contributions and earnings) is normally subject
to tax in the year of conversion. However, a special rule applies to Roth conversions in 2010: half of the resulting
taxable income is reported on your 2011 federal income tax return, and the other half on your 2012 federal income tax return,
unless you elect otherwise.
This calculator compares two scenarios: (1) The full or partial conversion of a traditional IRA to a Roth IRA in 2010, and
(2) No traditional-to-Roth conversion in 2010, The calculator assumes that you'll pay the conversion taxes from other assets,
and determines (for scenario 2) the amount you could have earned on that "side fund" had you not converted. For both scenarios,
all required minimum distributions (RMDs) are also invested in the side fund. The calculator estimates the IRA
accumulation and RMD distributions for the IRA owner and up to three beneficiaries (you can specify one spouse
beneficiary and up to two non-spouse beneficiaries). Total after-tax dollars are compared.
* If you have multiple traditional IRAs, you must pro-rate your nontaxable balance among them. The IRS provides a worksheet in Publication 590.
** Assumes rollover to own IRA.
Conversion Taxes are paid from other assets.
IRA owner turns 70½ in the same year he or she reaches age 70.
First lifetime RMD paid in the year IRA owner reaches age 70½; lifetime RMD calculation does not account for
special rules that apply when spouse is more than 10 years younger than IRA owner.
Death occurs on last day of the year; Conversion occurs at beginning of year; All taxes are paid at end of year incurred.
Federal estate tax and possible credit for estate taxes paid are not accounted for; state income and death taxes
and credits are also not taken into account.
RMDs are deposited into a side fund and grow at the specified annual rate of return. Amount(s) equivalent to any
conversion tax that would be owed as a result of the Roth conversion are also deposited into the side fund and grow
at the specified annual rate of return.
Assumes spouse beneficiary rolls over inherited IRA to own IRA, and RMDs start when spouse reaches age 70½.
Does not take into account special rule that says RMDs can be taken over owner's remaining life expectancy
if longer then the beneficiary's. Assumes separate accounts established for beneficiaries - beneficiaries own
life expectancy is used for RMDs.
This is a hypothetical example intended for illustration purposes only, and does not represent the performance of
any specific investment or portfolio, nor is it an estimate or guarantee of future value. The calculations above
assume that earnings are compounded annually, and that distributions from the Roth IRA will be tax free. Investment
fees and expenses have not been deducted. If they had been, the results would have been lower. When making an
investment decision, investors should consider their personal investment horizons and income tax brackets, both
current and anticipated, as these may further impact the results of this comparison.