Here is a conversation that we are having with our clients.  I thought it was important to share this information.


I’m sure you knew that in the 2010 the federal law was amended to allow conversions of traditional IRA’s to Roth IRA’s regardless of the income levels of the IRA owner. The current modified adjusted gross income (MAGI) limit is $100,000.  In addition, the law was amended to allow the IRA owner to pay the tax owed on the amount converted over a two year period (2010 and 2011), instead of paying the entire tax in the year of conversion. This is an interesting option for consideration for many of our customers. It makes a lot of sense, especially if you believe that income tax rates are at their lowest right now than they will be over the next decade or so. With all of the bailout money being dished out, Uncle Sam will need to raise revenue – this seems like a good probability.  


But did you know that our friendly Wisconsin legislators have not yet adopted this federal law change at the state level. This means that a person could convert his or her traditional IRA to a Roth IRA tax effectively for federal tax purposes, but at the Wisconsin state level (if the IRA holder’s MAGI is above $100,000) the conversion would either be a taxable event or possibly an ineffective Roth conversion. Either result is not acceptable for our customers.


If the IRA holder’s MAGI is below $100,000 in 2010, an effective Roth conversion can be executed at both the Federal and Wisconsin state levels.


Stay tuned…I’ll be participating on a conference call on Tuesday, September 29 with Wisconsin Banking Association – Trust Board members and a representative from the Wisconsin Department of Revenue to get further clarification on the state’s position. I’ll report back after the call with an update.    

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