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T06-0072 - IRA Conversion Provision Fully-Phased In Impact at 2006 Income Levels, Distribution of Federal Tax Change by Cash Income Percentile

A reported element of the 2006 tax reconciliation bill would allow taxpayers to roll over traditional IRAs into Roth IRAs in 2010 regardless of their incomes and pay the tax in two installments in 2011 and 2012. Under current law, taxpayers can only elect to convert their IRAs if their incomes are under $100,000, and there is no option to defer paying tax. Taxpayers benefit from rolling over and paying tax now because all future gains are completely exempt from tax. This table shows the distribution of lifetime tax benefits from the rollover option by income percentile at 2006 income levels.

May 1, 2006