Next year high earners may be surprisingly eager to incur a larger tax bill, said Pamela Yip in The Dallas Morning News. But only because they want to avoid paying even higher taxes in the future. The way they could manage this feat is by converting the funds in their tax-deferred IRA accounts into Roth IRAs, whose funds aren’t taxed upon withdrawal. For years, the Roth IRA “has been one of the best tax breaks around”—but it’s only been available to taxpayers with less than $100,000 in annual adjusted gross income. “That will change next year,” thanks to a federal law just coming into effect. Switching funds into a Roth IRA means paying income taxes immediately on the entire converted amount, so the initial cost may be “substantial.” But so are the benefits.
Just because high-income investors will soon have the option of converting to a Roth doesn’t mean they should, said Jeff Benjamin in Investment News. Tax experts are “working overtime on Roth conversion number-crunching scenarios” for their wealthy clients, but the “wild card” is predicting what will happen to income tax rates in the future. Taxes for many high earners could go up as soon as 2010. “Lots and lots of people are talking about doing Roth conversions next year, blindly thinking they’ll still be in a 35 percent tax bracket,” said Herbert Daroff, a tax attorney with Baystate Financial Planning in Boston. “But
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