Will Wisconsin adopt new IRA rules?

Each year during the biennial budget process, the state Legislature is given the option to adopt federal Internal Revenue Service (IRS) code updates that are approved by our federal government. Traditionally, Wisconsin has adopted changes that are advantageous to the taxpayers.

Unfortunately, during the last budget cycle, Gov. Jim Doyle and legislators who approved the budget decided against adopting two specific provisions that would have eliminated unnecessary penalties to people with retirement income.

At the request of many area residents, I am working to get these updates approved.

One of the changes that Wisconsin chose not to update relates to converting Individual Retirement Accounts (IRAs). As of Jan. 1, 2010, Wisconsin is the only state in the nation that has not adopted federal laws that will allow people to convert their traditional IRAs to Roth IRAs without penalties. By not adopting this provision, taxpayers whose income exceeds $100,000 and who convert a traditional IRA to a Roth IRA would be subject to an excess contribution penalty for each year they hold the Roth IRA. In addition, taxpayers under the age of 59½ would face an early distribution penalty at the time of conversion of the traditional IRA.

The other code change that Wisconsin did not adopt would have increased the maximum contribution limits to various retirement accounts. According to the Wisconsin Department of Revenue, the contribution increases are as follows:

• Traditional or Roth IRA to $5,000 ($6,000 for individuals over 50). Failure to adopt the federal provisions would mean the maximum IRA contribution for Wisconsin would revert to a limit of $2,000.

• Elective deferrals to $16,500 for 401(k) and 457 plan deferrals and $11,500 for simple plan contributions. Again, failure to adopt the federal provisions would mean these limits revert to limits of $7,500 and $6,000 respectively for Wisconsin.

Again, based on requests from many area citizens and to ensure that all Wisconsin residents have an opportunity to enjoy the new federal standards, I have co-sponsored Senate Bill (SB) 439 that would adopt the above increases to retirement accounts and allow for the approved conversions of traditional to Roth IRAs.

SB 439 recently passed out of the Senate Committee on Financial Institutions, of which I am a member, and it is now awaiting a vote by the full state Senate. In an effort to bring Wisconsin tax law in line with the rest of the nation, I am hopeful this important vote will occur in the coming weeks.

As always, it has been a pleasure communicating with you. Please remember to communicate with me and share your input by calling (888) 295-8750, writing to me at P.O. Box 7882, Madison, WI 53707-7882, or by e-mailing me at Sen.Leibham@ legis.wi.gov. You can also logon to the 9th Senate District online office at www.leibhamsenate.com. It is an honor representing the residents of the 9th District in the state Senate.