Our legislators in D.C. are determined to challenge everyone's intellectual capacity in handling ever-growing tax code every year. What will 2010 bring?
TurboTax maker Intuit compiled a good list of the new tax code that will govern our tax life in 2010 (and future years). Among the changes, the most important one for savers will be the Roth IRA conversion change (emphasis is mine):
Roth IRA Conversions
Starting in 2010, individuals with any amount of modified Adjusted Gross Income are free to switch a traditional IRA to a Roth IRA. Conversions are fully taxable at your regular tax rate. For conversions in 2010, taxpayers can spread the tax due over two years. Half the tax will be due in 2011, and the remaining half will be payable in 2012. Removing the limit on conversions effectively eliminates the income limit on contributions to Roth IRAs. A taxpayer with income too high to use a Roth will be able to contribute to a traditional IRA (which does not have income limits for contributions) and immediately convert to a Roth.
Smart tax planners already started to advise their clients a few years back when it was confirmed that the full unrestricted conversion will be allowed starting 2010. But now every high income filer with a saver's mentality should be familiar with this rule. The key point: if you are priced out of Roth IRA (about $105,000 for single filer and $167,000 for joint filers), you can still contribute up to $5,000 to traditional IRA and convert to Roth IRA immediately. All the nice perks associated with Roth IRA, like no required withdrawal, and penalty-free withdraw of the original contribution, will be yours to keep.
Another tax change is related to estate tax. This year, all the rich people can die free from estate tax thanks to a lapse in Congress action.
Estate Tax Repealed
The federal estate tax will be eliminated for estates of individuals who die in 2010 unless Congress acts by December 31, 2009 to retain it.
No wonder many multi-millionaires had been counting on life support to survive the divide of the decade!