The Patient Protection and Affordable Care Act of 2010 (PL 111148) will bring the most sweeping changes to American health care. The 2010 Healthcare Reconciliation Bill adds a surtax of 3.8% to investment income beginning in 2013.
Many IRA owners could benefit from taking a second look at a possible ROTH conversion. Your team of advisors can help you review your situation to see how it fits. ROTH conversion is not for everyone and your specific circumstances, goals and investment time horizon will impact your decision. Like many legal and financial decisions the answers depends.
Roth conversions from 2010 through 2012 will help many taxpayers reduce their exposure to the new surtax. Within the surtax provisions of the law a “bubble” exists for many taxpayers which will result in a 43.4% effective tax rate on all or a portion of traditional IRA distributions. This tax rate could be avoided on future ROTH distributions, as a result the potential future tax savings of a ROTH conversion before 2013 are enhanced because of the health care surtax.
Some people are not candidates for a ROTH but maybe should consider it. Call to get an appointment with your advisors today to see how this new tax law impacts your estate and retirement planning situation.