KANSAS CITY, MO -
There are several ways to save for the future, including Roth IRAs. Roth IRAs are the "back-loaded" IRAs, meaning that the benefit is on the back end. Contributions are made after tax, so there is no tax deduction. However, all the earnings on the contributions are tax free, so long as the money is not withdrawn within five years or before age 59 1/2.
There are two aspects to know about the Roth IRA: Contributing to a Roth IRA and converting to a Roth IRA. To contribute to a Roth IRA, your income must be less than $156,000 if filing married or less than $99,000 if filing single. To convert existing IRA money to a Roth IRA, your income must be less than $100,000, whether filing married or single. HOWEVER-THIS RULE CHANGES IN 2010, WHEN THERE WILL NO LONGER BE A LIMIT ON EARNED INCOME IN ORDER TO CONVERT!
Who should consider converting their IRA to a Roth IRA in 2010?
Bottom line: if you are eligible to contribute to a Roth IRA, you should do it. (Remember, just like traditional IRAs, you can contribute to a Roth IRA even if you participate in a company retirement plan.) If you are eligible to convert to a Roth IRA, you should consider it. Conversion will trigger all the taxes due on the existing IRA, since Roth IRA contributions must be after-tax. However, the long-term benefit of tax-free growth may far outweigh the taxes paid now. The younger you are, the greater the long-term benefit.
If you are not eligible to convert to a Roth IRA this year, you will be eligible next year. But just because you are eligible to convert doesn't necessarily mean that you are a good candidate to convert. Remember, you will have to pay the tax to convert. The government is offering an incentive to get you to convert in 2010: Anyone who converts from an IRA to a Roth IRA in 2010 will have the option to defer claiming the income until 2011 and 2012, thereby deferring the income tax until then. You are probably a good candidate to convert if: you are young; you have the cash to pay the tax; your IRA is a relatively small piece of your overall investment portfolio; and you do not plan to leave your IRA to charity.
If it makes sense to you to convert some or all of your IRA to a Roth IRA in 2010 (and pay all of the resulting tax), then consider doing it early in the year, because the tax is based on the value of the converted amount, and if the market continues to rise, then the value should be lower at the beginning of the year than later in the year.
How should you go about getting more information? You can ask your accountant or tax preparer. There are some websites available to give you more information and even to help you calculate the benefits of Roth IRAs.
www.rothira.com www.irs.gov
There are two aspects to know about the Roth IRA: Contributing to a Roth IRA and converting to a Roth IRA. To contribute to a Roth IRA, your income must be less than $156,000 if filing married or less than $99,000 if filing single. To convert existing IRA money to a Roth IRA, your income must be less than $100,000, whether filing married or single. HOWEVER-THIS RULE CHANGES IN 2010, WHEN THERE WILL NO LONGER BE A LIMIT ON EARNED INCOME IN ORDER TO CONVERT!
Who should consider converting their IRA to a Roth IRA in 2010?
Bottom line: if you are eligible to contribute to a Roth IRA, you should do it. (Remember, just like traditional IRAs, you can contribute to a Roth IRA even if you participate in a company retirement plan.) If you are eligible to convert to a Roth IRA, you should consider it. Conversion will trigger all the taxes due on the existing IRA, since Roth IRA contributions must be after-tax. However, the long-term benefit of tax-free growth may far outweigh the taxes paid now. The younger you are, the greater the long-term benefit.
If you are not eligible to convert to a Roth IRA this year, you will be eligible next year. But just because you are eligible to convert doesn't necessarily mean that you are a good candidate to convert. Remember, you will have to pay the tax to convert. The government is offering an incentive to get you to convert in 2010: Anyone who converts from an IRA to a Roth IRA in 2010 will have the option to defer claiming the income until 2011 and 2012, thereby deferring the income tax until then. You are probably a good candidate to convert if: you are young; you have the cash to pay the tax; your IRA is a relatively small piece of your overall investment portfolio; and you do not plan to leave your IRA to charity.
If it makes sense to you to convert some or all of your IRA to a Roth IRA in 2010 (and pay all of the resulting tax), then consider doing it early in the year, because the tax is based on the value of the converted amount, and if the market continues to rise, then the value should be lower at the beginning of the year than later in the year.
How should you go about getting more information? You can ask your accountant or tax preparer. There are some websites available to give you more information and even to help you calculate the benefits of Roth IRAs.
www.rothira.com www.irs.gov
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