Roth IRA Conversion

Lost among all of the talk about Federal estate tax repeal, is one of the greatest opportunities that Congress has given to many of my clients in years -- the uncapped Roth IRA conversion opportunity. Until 2010, a Traditional IRA could only be converted to a Roth IRA by a taxpayer with adjusted gross income of less than $100,000. However, starting this year, anyone can convert a Traditional IRA to a Roth IRA, regardless of the amount of adjusted gross income earned in the year. In analyzing the benefits of a Roth IRA conversion, I have found that most of my clients will achieve significant benefits from converting. Among the benefits achieved are:

(i) no required minimum distribution rules for the original owner of the Roth IRA;
(ii) the ability to pay income taxes from non-tax-deferred assets which, in effect, results in increased deferral opportunities; and
(iii) paying income taxes with dollars that might otherwise have been subject to estate taxes (effectively paying your kids future income tax liability with pre-estate tax dollars).

Of course, a Roth IRA conversion may not be right for everyone, but everyone should, at a minimum, consider whether it is right for their individual situation.

Please Hold Your Applause

So the day that we thought would never get here, is here. On January 1, 2010, the Federal estate tax was repealed. Yes, you heard me right. There is no longer a Federal estate tax. So let's assume that when Bill Gates gets a look at the new Apple tablet computing device, he is so overcome with fear that he drops dead. Even though in real life he is an extremely philanthropic guy, assume that he has a will that leaves his entire fortune to his children. So the kids inherit $50,000,000,000 tax free in 2010, and the IRS receives nothing. If Bill had the same plan and died in 2009, the IRS would have received over $22,000,000,000 (all those zeroes mean we are talking about billions of dollars). If Bill dies in 2011, anything over $1,000,000 (these zeroes mean one million dollars) will be subject to Federal estate taxes at rates as high as 55%. Yes, you read that correctly, the Federal estate tax repeal is temporary -- it comes back in 2011. But wait -- there's more -- there is a very real possibility that the Federal estate tax could come back in 2010 and may even be made effective retroactively back to January 1, 2010. Of course, you and I know how insane this is. But Congress has only known about this for eight years. Certainly, they could not have been expected to deal with these issues over that short a period of time. What this means is that it is a very interesting time to be practicing in the area of estate planning. It also means that everyone should revisit their estate plan to determine whether or not changes are necessary. You might also think of writing to your member of Congress and suggest they get off their "keisters" and figure this thing out.

Estate Planning for You

I would like to welcome you to my estate planning law blog. I am a Trusts and Estates Attorney practicing in Denville, New Jersey. I am a partner in the law firm of Einhorn, Harris, Ascher, Barbarito & Frost, P.C. I intend to use this blog as a means of communicating important ideas and changes in the law to my clients and the general public. You should feel free to comment and/or submit questions to me and I will do my best to respond. Of course, the information contained herein is intended for informational purposes only and should not be construed as legal advice. You should seek competent legal counsel for advice on any legal matter. Anyone to whom this communication is not expressly addressed should seek advice based on their particular circumstances from their legal advisor.

Please feel free to visit my website at www.estateplanningnj.com or www.einhornharris.com.