If you were actively planning in 2010 and the years since, then you've heard much about the power of Roth IRA conversions. Guess what … Roth IRA conversions remain a remarkable and tax-smart move.
A recent article in MarketWatch, titled "Roth IRA conversions: Still tax-smart," extolls the virtues of the conversion strategy and the math behind it. Essentially, a Roth IRA works like a backward IRA by allowing you to pay the tax upfront, rather than delaying it until later as with a traditional IRA. Moreover, a traditional IRA can be converted to a Roth within certain restrictions.
Granted, this is a retirement planning tool, but it also can become a powerful estate and gift planning tool. While an IRA can always be left to beneficiaries, every dollar withdrawn is subject to ordinary income taxation. Distributions from an inherited Roth IRA, on the other hand, are taken without any income tax bill. That's pretty powerful, yes?
The important and timely message is that all of the relevant conversion rules and taxes are at fairly gentle levels for the remainder of 2012, but the future beyond that is uncertain. Accordingly, you should act now, if you want to take advantage of this window of opportunity before it closes.
Reference: MarketWatch (August 28, 2012) "Roth IRA conversions: Still tax-smart"