As all us personal finance geeks know, 2010 is a special year with regard to converting your traditional IRA to a Roth. For the benefit of non-geeks who have accidentally brought up this blog on their browser, it is worth explaining
that there are actually two separate changes in the rules that kicked in on January 1, 2010.
The first is that from now on there is no income limit for doing a conversion. In the bad old days, to be eligible you needed to have an income of less than $100,000. Today anybody with a traditional IRA can convert it to a Roth, and this is true for all future years, not just 2010. (Unless, of course, Congress changes the rules again.)
The second IRA conversion change for 2010, and the one that makes 2010 "special" is that if you convert during 2010, and only during 2010, you have the option of deferring the income from the conversion to 2011 and 2012. So if you convert $100K from your traditional to Roth, you have the choice of either increasing your taxable income by $100K in 2010 or by $50K in both 2011 and 2012.
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As most of you know, 2010 is a special year for taxes. It is the last year covered by the Bush tax cuts which, as you may remember, were engineered as a package of temporary adjustments and deals rather than permanent 
changes. Most of it goes poof on December 31st of this year.
In the meantime, 2010 is a special year for converting traditional IRAs into Roths. When the Bush cuts were being constructed there was a need to find more government revenue, particularly at the end of the period covered by the law, i.e. 2010. IRA conversions fit the bill because, in the short run, they generate additional income tax revenue. (In the long run they do not, since conversions reduce income taxes paid in the future.)
So as of a few days ago, the income limitation on conversion to a Roth is gone. And just to get things started with a bang, for 2010 only, you have the option to defer the income tax bill on the conversion to 2011 and 2012. (That is, it is split between those two tax years.)
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There was a pretty good post over at WiseBread yesterday on how if a credit card company forgives some of what you owe, what was forgiven is income 
you have to pay taxes on.
On the one hand, this is a point worth repeating because it seems to surprise most people. On the other hand, the post neglects to mention an important exception, and, moreover, feeds into the belief that this is an irrational fluke of the tax code. It isn’t. It makes sense.
You owe Credit Card Corporation (CCC) $5000. Realizing you are unlikely to pay them back in full, and now regretting lending you the money to begin with, CCC agrees to settle the debt for $2000 cash. You sell your PEZ dispenser collection on eBay and send them a check.
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The Wall Street Journal has been running a series modestly entitled "The New Rules of Personal Finance". The most recent installment is on what to do differently now that you know that taxes will be going up.
As readers of this blog know, I’m not all that convinced taxes are on the way up anytime soon. Yes, the deficit and debt are heart-poundingly frighteningly large. And yes, any reasonable observer can see that something has to be done. That doesn’t mean it will be.
I am sure that the Administration and its supporters would, if they had their druthers, raise taxes significantly to get the deficit under control. But I am also sure they are aware enough to see that they just don’t have the political capital right now. And when would they? Next year, during the mid-term election season? In 2011 and 2012, when Obama will be facing what is looking like a tough reelection?
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This blog is primarily about bad advice, that is, the recommendation of unwise money choices. But I also have a nice sideline going in misinformation, statements about personal finance that are not merely foolish, but are flat-out objectively wrong.
A recurring topic in that area, you might call it a running gag, is the lack of tax saving advantages of Roth IRAs over 
traditional ones. When I started this blog a few months ago I assumed that most of the people who published misinformation about Roths knew better but had some motive, be it sinister or well-meaning, to mislead. Now I understand that they just don’t understand what they are talking about.
The latest infuriating instance of this is a blog post on Mint.com written by Michael B. Rubin, author of the book and blog Beyond Paycheck to Paycheck and "President of Total Candor, a financial planning education company." It was linked to by the Wall Street Journal’s Wallet blog.
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that there are actually two separate changes in the rules that kicked in on January 1, 2010.
Taxes | Frank Curmudgeon | 
January 19, 2010 12:59 pm | 
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