A tax break that will raise taxes

Michael Nadler
Obama and the Democrats have been trying to maintain the fiction of adhering to their campaign promise of absolutely no tax increases on anyone making less than $250,000.  In addition to already enacted higher cigarette taxes and their massive and unnecessary energy cap and tax (what they call "cap and trade") proposal, they have now proposed graduated tax surcharges ranging from 1% to 5.4% on adjusted gross income over $350,000 ($280,000 for singles) to pay a portion of the costs of their plan to nationalize healthcare.

But even the healthcare surtaxes will hit many whose earnings are less than $250,000.  The reason is that the existing tax law provides a 
one-time opportunity in 2010 for anyone to convert a traditional IRA or old 401(k) from a previous employer to a Roth IRA.  In any other year, such a conversion can only be made by those with income, including the conversion amount, of less than $100,000.  In making the IRA conversion, one would pay ordinary income tax on the amount of the traditional IRA converted (treated as income spread over 2011 and 2012 for tax purposes).  For many, having their retirement money in a Roth IRA, where withdrawals are no longer subject to income tax and there are no minimum required distributions, can provide benefits that are likely to far outweigh the tax hit on the conversion.

Taking advantage of this one-time retirement account conversion opportunity will push many with normal income significantly less than $250,000 and even modest retirement accounts into the $350,000 or more category, making them subject to one more Obama-Pelosi-Reid tax increase. 

Obama and the Democrats have been trying to maintain the fiction of adhering to their campaign promise of absolutely no tax increases on anyone making less than $250,000.  In addition to already enacted higher cigarette taxes and their massive and unnecessary energy cap and tax (what they call "cap and trade") proposal, they have now proposed graduated tax surcharges ranging from 1% to 5.4% on adjusted gross income over $350,000 ($280,000 for singles) to pay a portion of the costs of their plan to nationalize healthcare.

But even the healthcare surtaxes will hit many whose earnings are less than $250,000.  The reason is that the existing tax law provides a 
one-time opportunity in 2010 for anyone to convert a traditional IRA or old 401(k) from a previous employer to a Roth IRA.  In any other year, such a conversion can only be made by those with income, including the conversion amount, of less than $100,000.  In making the IRA conversion, one would pay ordinary income tax on the amount of the traditional IRA converted (treated as income spread over 2011 and 2012 for tax purposes).  For many, having their retirement money in a Roth IRA, where withdrawals are no longer subject to income tax and there are no minimum required distributions, can provide benefits that are likely to far outweigh the tax hit on the conversion.

Taking advantage of this one-time retirement account conversion opportunity will push many with normal income significantly less than $250,000 and even modest retirement accounts into the $350,000 or more category, making them subject to one more Obama-Pelosi-Reid tax increase.