IRA conversion could cost in the end

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Thursday, January 14, 2010
— As a certified financial planner, Dave Miser was particularly interested in the newspaper story about Individual Retirement Accounts.

The article, authored by a MarketWatch reporter and published in the Marketplace section of Sunday’s Gazette, focused on a new federal law that allows all Americans—not just those with modified adjusted gross incomes of less than $100,000—to convert their traditional IRAs to Roth IRAs.

While Miser believed the article was well done and informative, he found one problem.

“It doesn’t work in Wisconsin,” said Miser, whose office is at Mid America Bank in Janesville.

The new federal rules allow people of all income levels to convert traditional IRAs to the Roth IRAs, which offer an advantage of tax-free withdrawals.

Miser said Wisconsin didn’t adopt the federal rule. That means investors who make conversions could pay an initial penalty of as much as 5.3 percent of the money they transfer and 2 percent a year from then on.

Gov. Jim Doyle recommended last year that the state adopt the new federal rules, but the state’s budget-writing committee opted to make Wisconsin the only state not to do so.

Miser said a barrage of advertisements has tried to persuade investors to convert to Roth IRAs. But few people know of Wisconsin’s position on the IRA tax implications.

“Not everyone uses a certified financial planner, and when you call the 800-number, it’s not mentioned that Wisconsin is alone on this,” he said.

“The state thinks it can collect a lot of taxes this way, but it’s just the wrong way to do it,” he said. “It’s kind of sneaky.”

Miser said hearings are under way in Madison on retirement account taxation, but action could be months away.

In the meantime, he urges people to contact their lawmakers.

“Wisconsin savers planning for retirement should not be penalized for the same transactions and amounts that people in other states can accomplish penalty-free,” he said.

Last updated: 12:40 pm Thursday, December 13, 2012

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