Dear friends of RC Jones & Associates
The buzz about Roth IRA conversions is getting louder. And why not: For the first time ever, higher-income taxpayers can convert their traditional IRAs into a Roth. Beginning in 2010, the prior restriction for taxpayers with an adjusted gross income (AGI) above $100,000 is eliminated. Also, you can split the tax bill for a 2010 Roth conversion evenly over 2011 and 2012. (You report 50% of the income in each of those years.)
But should you convert to a Roth? That's another story. Don't assume that a conversion is right for you just because you can do it for the first time. Also, if it suits your purposes, you might convert only part of your traditional IRA assets and leave the rest alone.
Qualified distributions from a Roth (e.g., distributions after age 59 ½ and after having a Roth IRA in existence for more than five years) are federal-income-tax-free. Plus, you're not required to take minimum distributions after age 70 1/2 like you are with a traditional IRA. These future benefits offer plenty of incentive to convert to a Roth this year.
However, there are other variables to consider. For example:
• Many online calculations assume that you'll be paying the full amount of tax on the conversion with funds outside of your IRA. That might not the case. If you have to use some or all of the IRA assets to pay the tax piper, this will dilute or even wipe out the benefit of the conversion.
• The numbers will also change if you've contributed to IRAs on a nondeductible basis. There's no tax on the portion attributable to these contributions.
• Consider the impact of any state and local income taxes owed in addition to federal income tax. This is especially critical if you live in a high-tax state.
• The additional tax liability on the conversion could push you into a higher tax bracket. Conversely, if you delay the conversion until you're in a lower tax bracket, you might come out ahead.
This critical decision requires a thorough analysis of the facts. Do not hesitate to contact our office at (816) 792-9966 to schedule a consultation with one of our experienced staff members.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Wednesday, January 20, 2010
COBRA SUBSIDIES EXTENDED
Dear friends of RC Jones & Associates
The COBRA subsidy program was scheduled to expire on Dec. 31, 2009. But a late reprieve from the government keeps the program up-and-running awhile longer. The extensions were tacked onto a defense appropriations bill -- the Defense Appropriations Act of 2010 -- which was signed on Dec. 19, 2009.
Under COBRA (short for the Consolidated Omnibus Budget Reconciliation Act of 1985), an employee who is terminated from work by an employer with 20 or more employees may elect to continue employer-provided health insurance coverage for up to 18 months. But the employee generally has to pay the full cost of the premiums to the employer plus a 2% administrative fee.
At least the 2009 economic stimulus law provided some measure of relief: a 65% discount for workers "involuntarily terminated" from the job between Sept. 1, 2008 and Dec. 31, 2009, for up to nine months. The employer must pay the balance, but it can recoup the cost through special payroll tax adjustments
This COBRA discount program phases out for high-income taxpayers. Single filers with an AGI exceeding $125,000 and joint filers with an AGI exceeding $250,000 must repay part of the amount as an additional tax. The phase-out is complete at $145,000 of AGI for single filers and $290,000 for joint filers.
The new defense appropriations law includes four key changes for involuntarily terminated employees who qualify for assistance.
1. The eligibility period for COBRA assistance is extended by two months. Previously, it applied to involuntary terminations between Sept. 1, 2008, and Dec. 31, 2009. Now it stretches our through Feb. 28, 2010.
2. The length of time an ex-employee can benefit from the subsidy is expanded to 15 months. So some workers can continue paying reduced COBRA premiums into 2011.
3. Employers must provide credit against future payments to qualified employees who paid the full premium in December 2009. Individuals should contact their plan administrator or employer sponsoring the plan.
4. Employers are required to inform laid off workers about the latest changes in the COBRA subsidy program.
We are glad to provide additional guidance relating to the COBRA subsidies. Both employees and employers may contact our office at (816) 792-9966 for more information.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
The COBRA subsidy program was scheduled to expire on Dec. 31, 2009. But a late reprieve from the government keeps the program up-and-running awhile longer. The extensions were tacked onto a defense appropriations bill -- the Defense Appropriations Act of 2010 -- which was signed on Dec. 19, 2009.
Under COBRA (short for the Consolidated Omnibus Budget Reconciliation Act of 1985), an employee who is terminated from work by an employer with 20 or more employees may elect to continue employer-provided health insurance coverage for up to 18 months. But the employee generally has to pay the full cost of the premiums to the employer plus a 2% administrative fee.
At least the 2009 economic stimulus law provided some measure of relief: a 65% discount for workers "involuntarily terminated" from the job between Sept. 1, 2008 and Dec. 31, 2009, for up to nine months. The employer must pay the balance, but it can recoup the cost through special payroll tax adjustments
This COBRA discount program phases out for high-income taxpayers. Single filers with an AGI exceeding $125,000 and joint filers with an AGI exceeding $250,000 must repay part of the amount as an additional tax. The phase-out is complete at $145,000 of AGI for single filers and $290,000 for joint filers.
The new defense appropriations law includes four key changes for involuntarily terminated employees who qualify for assistance.
1. The eligibility period for COBRA assistance is extended by two months. Previously, it applied to involuntary terminations between Sept. 1, 2008, and Dec. 31, 2009. Now it stretches our through Feb. 28, 2010.
2. The length of time an ex-employee can benefit from the subsidy is expanded to 15 months. So some workers can continue paying reduced COBRA premiums into 2011.
3. Employers must provide credit against future payments to qualified employees who paid the full premium in December 2009. Individuals should contact their plan administrator or employer sponsoring the plan.
4. Employers are required to inform laid off workers about the latest changes in the COBRA subsidy program.
We are glad to provide additional guidance relating to the COBRA subsidies. Both employees and employers may contact our office at (816) 792-9966 for more information.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
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