“Roth revolution” just around the corner, adviser predicts

The elimination of the income limit on Roth IRA conversions starting next year could lead to a “Roth revolution,” according to David Polstra, a partner at the advisory firm Brightworth Private Wealth Counsel.
OCT 02, 2009
The elimination of the income limit on Roth IRA conversions starting next year could lead to a “Roth revolution,” according to David Polstra, a partner at the advisory firm Brightworth Private Wealth Counsel. Speaking today at the Investment Management Consultants Association's fall conference, Mr. Polstra described the new rule as a “loophole” that essentially paves the way for high-wage earners to participate in Roth IRAs. While restrictions on funding a Roth IRA kick in on incomes starting at $105,000 for singles and $166,000 for married tax filers, the new conversion provision could help financial advisers maneuver their clients around these caps. High-income clients need simply to fund a traditional IRA and then convert to a Roth, Mr. Polstra said. And while the high earners will still be prohibited from funding a Roth directly, they can get around the restriction by following the same funding and converting process year after year. One incentive that is likely to trigger a lot of conversions next year is the rule the allows the taxes on conversions to be paid over the 2011 and 2012 tax years, instead of all at once for 2010. The risk, however, is that taxes may rise significantly in the next two or three years, he added.

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