Question: I am planning on converting my regular IRA to a Roth this year and so is my husband. I want to report all of the conversion in 2010 and pay the taxes while my husband wants to spread out the tax payments over two years. What can we do as we file a joint tax return?
Allison B., Cambridge, MA
Answer: For married couples who file a joint tax return, you do have some options. First, the tax laws allow you and your husband to each convert the IRAs in 2010 and elect different tax treatment. Thus, it is possible for both to convert in 2010 and the husband (in this case) can elect to defer the taxes while the wife can elect to have all taxes paid for 2010. There are some different reasons why you may want to make either of these elections- it may be better to pay the taxes for 2010 because you believe (as do I) that tax rates will be increasing in 2011 (and thus by deferring you will end up paying more in taxes than paying the tax bill in 2010). However, some taxpayers may want to defer the taxes to take advantage of a rule that allows the taxes to be paid in 2011 and 2012 (with or without tax rate increases).
In addition, there is another rule present in these cases: each individual must be consistent in his or her tax treatments with respect to the conversions. For instance, if the husband has 3 different Traditional IRAs that he wants to convert to Roth IRAs, he must use the same tax treatment on all three IRAs. This means that if he elects to defer the taxes, he can do so but must do so for all three of his IRAs that he is converting. He is NOT permitted to pay taxes on one in 2010 and defer the other two until 2011 and 2012.
Thus, it is fine for each spouse to choose a different method of paying the taxes due on a Roth conversion as long as each spouse is consistent with his or her own tax treatment of these conversions.
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