After asking my previous question and reading about the different options available, I'm looking at rolling it over to a Roth IRA to avoid paying the taxes at retirement. Is it better to do this in 2010, or wait until 2011? Why?

  • Are you expecting anything to change between Jan. 1 2011 and Jan. 1 2012 for you with regards to taxes?
    – justkt
    Commented Dec 10, 2010 at 18:37
  • No, I'm not expecting a change between those dates. Commented Dec 10, 2010 at 19:37

1 Answer 1


I don't have all the information yet, but I'm struggling with this one myself. If Obama's deal w/ the Republicans (to extend the Bush era tax cuts for 2 more years) does go through, then doing this conversion will be a bit cheaper, since your marginal tax rate on regular income (which is, I believe, how the funds converted would be characterized) would remain a few % lower for 2011 and 2012 (vs the increase going into effect in 2011 without that deal).

Forget about that for a second though.

The big thing about doing the conversion in 2010 vs. 2011 is that if you do it in 2010, you get to defer half of the taxable income the conversion creates by 1 year.

So if you converted $50,000 in 2010, instead of adding $50,000 taxable income all in one year, you spread that $50,000 (evenly) over 2 tax years.

That's a double win: * you don't owe taxes on that 2nd half ($25k) of the funds converted for a whole extra year * spreading out that peak in income may allow me to avoid hitting a higher tax bracket, so I'll pay less absolute taxes overall

If you're in the 25% federal tax bracket, that let's you defer the payment of $6,250 (25% of $25k taxable income deferred) in taxes by one year. If you're debt free and you had enough cash flow to cover that payment now, then at least you get to invest that money for another year.

For others though, this deferral may be a deciding factor in whether they can afford to do the conversion at all, or allow them to pay down high interest debts (almost always the highest-yielding investment decision a person can make).

After Dec 31st of this year though, you have to take 100% of the conversion as taxable income all in one year.

  • I haven't been able to confirm, but I believe there's one more benefit to converting in 2010 - originally I thought I had to declare 50% of the conversion as taxable income in 2010 tax year, and 2nd half in 2011 tax year - but I believe if you do it in 2010 (and only 2010), you get to defer both of those halves by another year - i.e. half in 2011 tax year and half in 2012 tax year. If you convert in 2011 calendar year, I'm pretty sure you have to declare 100% of conversion as income in 2011 tax year.
    – Jon S
    Commented Dec 10, 2010 at 18:54
  • +1 Great Answer, I think however you have until April 15, 2011 to make the conversion. I know that I can count whatever I put into an IRA by April 15th for the previous tax year. Commented Dec 12, 2010 at 18:29

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