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November 20, 2009
Dear
Friends of Our Firm,
The
Wisconsin Department of Revenue has issued an announcement that Wisconsin HAS NOT adopted the provisions of
the federal tax laws concerning the conversion of a qualified retirement
account to a Roth IRA in 2010. Until
Wisconsin adopts the provision, taxpayers who make the conversion from a
regular IRA to a Roth IRA in 2010 will have different tax treatments for
federal and state income tax purposes.
For
federal tax purposes, persons who make the conversion in 2010 can elect to
postpone payment of the tax on the converted amount until they file their 2011
and 2012 income tax returns, however, because Wisconsin has not adopted the
provisions, the tax on the converted amount will be due in full with the 2010
Wisconsin income tax return.
Additionally,
taxpayers with modified adjusted gross income over $100,000 who make the
conversion WILL BE SUBJECT TO CERTAIN WISCONSIN PENALTIES!
If a
taxpayer making the conversion is under age 59-1/2, they would be subject to an
early distribution penalty. The penalty
is equal to 3.33% of the amount converted, and would also be subjected to a 2%
penalty for an excess contribution to the Roth IRA. This penalty would be applied every year until the excess
contribution is withdrawn! Persons age
59-1/2 or over would only be subject to the excess contribution penalty.
The
department will be publishing further guidance on this issue if the federal
provision is adopted in the next legislative session that begins in January
2010.
If you are considering a conversion of your
qualified retirement plan to a Roth IRA in 2010, tax planning for the
conversion will be very important.
Contact
us at (262) 754-4300 to schedule an initial tax planning meeting to discuss
your Roth IRA conversion.
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