Archives
Contribute
| Tax Tips: Tax Strategies For IRA Losses |
Nila Rakhit, CPA
01/16/2009
Tax strategies for IRA losses
=============================
Trillions of dollars disappeared from taxpayers' retirement accounts in the closing months of 2008, thanks to the crisis in the financial markets. If your
IRA lost value, you might have a tax opportunity to consider.
* CONVERT YOUR TRADITIONAL IRA TO A ROTH IRA.
Converting to a Roth triggers income tax on the value of your IRA, but since your IRA's value has dropped, the tax would also be lower. The benefit: Qualified withdrawals from Roth IRAs are tax-free while withdrawals from traditional IRAs are subject to ordinary income tax. There is a $100,000 income threshold to qualify for a Roth conversion in 2009; this income limit ends in 2010.
* RECHARACTERIZE A ROTH TO A TRADITIONAL IRA.
What if you converted your traditional IRA to a Roth IRA in 2008 before the market took a dive and are now facing income tax on a higher value than your Roth IRA currently has? In this situation, you might consider what is called a "recharacterization" - making a trustee-to-trustee transfer from the Roth back to a traditional IRA, essentially canceling out the original conversion to a Roth and any taxes due.
IRS Circular 23 Notice: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for purposes of (i) avoiding penalties under the Internal Revenue Code or ( ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
|
You may also access this article through our web-site http://www.lokvani.com/
