We’ve enjoyed some relief in tax rates over the past ten years, with a low-end rate of only 10%, and the highest rate for individuals at 35%. Automatically at the beginning of 2011, the 10% floor goes away, bumped up to the 15% rate, and the ceiling is raised to 39.6%.
For those of you who are looking to make Roth IRA conversions in 2010 – while the provision that allows paying the tax on the conversion over the two tax years (2011 and 2012) looks like a good deal, keep in mind that the payment plan will be at the new, improved rates. Pay close attention to these rates and brackets as you consider your Roth conversion strategy.
The current rates (through 2010) are as follows:
- 10%
- 15%
- 25%
- 28%
- 33%
- 35%
The new (actually old, pre-EGTRRA) rates for 2011 and beyond are as follows:
- 15%
- 28%
- 31%
- 36%
- 39.6%
Of course, the brackets adjust every year – that is, the amount of taxable income that is assessed at each of the rates. Your individual situation may not change, depending upon where in the bracket you happen to fall. Chances are, however, that most everyone will be afforded the opportunity to assist the government in bailing us out of the deficit mess we’re in.
I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 20 years of experience in the industry. . Read more from this author
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[...] The effective rate on the household’s gross income of $85,000 will go from 9.2% to 10.2%. For the same family in our example but with a household gross income of $120,000, under the new schedule and bracket the tax would be $17,462, versus $15,875 using the real 2009 schedules, changing the effective rate for the family from 13.2% to 14.6%. The effect becomes less pronounced as incomes rise, due to the fact that the marriage penalty is in full effect for the higher brackets. And this doesn’t take into account the revision to the tax brackets that will go into effect as of 2011 as well – read more on that change by clicking here. [...]
[...] a lot of money! But then again, half in 2011 and half in 2012 – didn’t someone mention that tax rates are going to increase? It sure would be nice to be able to split this up over all three [...]