By Scott Moser, CPA/PFS, MST

Everyone has heard about the Roth IRA by this time and many of you have followed our Roth conversion recommendations by taking advantage of numerous tax saving opportunities over the past 10 years. Finally, here is an opportunity that everyone should consider that may not last beyond this year.  2012 is the last year the favorable tax rates implemented in 2002 will apply; in 2013, tax rates will revert to the higher Pre-Bush Era 2001 tax rates. So anyone with retirement plan accounts that they can direct should consider a 2012 Roth conversion now! 

There are significant advantages to completing a Roth conversion now.  Any 2012 conversion may increase in value on a tax-free basis until 10/15/2013 before you have to commit to paying tax on the conversion.  So if your Roth IRA substantially increases in value over the next 21 months, it's likely you'll benefit by keeping the conversion and paying the conversion tax at 2012 tax rates. However, if the Roth IRA decreases in value, you have the option of reversing the conversion with no adverse impact. In addition, consider that any increase in future tax rates will improve your chance of saving taxes by completing the conversion at 2012’s lower tax rates. Since 2012's top rate is 35% and 2013's top rate is 39.6%, the Roth conversion may even make sense if your Roth decreases in value; a $10,000 withdrawal in 2012 will cost $3,500 compared to a 2013 withdrawal that will cost $3,960 in tax.
No one knows what will happen to future tax rates but we are certain everyone will have better visibility of 2013 tax rates in September of 2013!

Bob Keebler has highlighted some additional opportunities on managing Roth IRAs. A link to Bob’s latest ideas is included below and we would just like to add two additional concepts to consider for your Roth conversion strategy:
• Always consider your overall asset protection strategy before making any change in your retirement accounts.
• If you have earned income (wages or other business income), it's likely you can fund annual contributions to your Roth IRA, even if your income is Warren Buffet like. - more