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CCH® PENSION AND BENEFITS — 5/15/06

Roth IRA conversion limit eliminated under tax reconciliation bill

As we go to press, congressional conferees have announced agreement on a tax package that includes a provision that would eliminate the income limits on conversions of traditional IRAs to Roth IRAs, starting in 2010. The bill, H.R. 4297 was passed by the House on May 10, 2006, and is awaiting action in the Senate. The President is expected to sign the bill.

No income limits for Roth IRA conversions after 2009

Currently, in order to be able to convert from a traditional to a Roth IRA, the taxpayer's adjusted gross income for the year must not exceed $100,000. The $100,000 limit applies to the combined income of a married couple filing jointly. Under the tax reconciliation bill, the income limit would be eliminated, effective for tax years beginning after December 31, 2009. Thus, taxpayers would be permitted to make such conversions without regard to their AGI. Under the bill, taxpayers could elect to pay tax on amounts converted in 2010 in equal installments in 2011 and 2012. However, income inclusion would be accelerated if converted amounts were distributed before 2012.

Expired provisions that did not make it into this reconciliation legislation are expected to be taken up in a follow-on piece of tax legislation. Congressional leaders have indicated that this second tax bill is likely to be attached to pension reform legislation (H.R. 2830), which is currently in conference negotiations.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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