December 14, 2009
Roth IRAs can be more beneficial than other retirement accounts because qualified distributions are not taxable, and you don't have to take required minimum distributions when you reach the age of 70½.

However, you cannot make a Roth IRA contribution when your income exceeds certain limits. For 2009, the Roth IRA contribution limit is phased out (reduced) when your modified adjusted gross income (AGI) is between $105,000 and $120,000 ($166,000 and $176,000 if married filing jointly).

If your income is too high to make a Roth IRA contribution for 2009, you can still make a contribution to a traditional IRA. In general, the contribution will be nondeductible if you or your spouse is covered by a retirement plan at work, but it will give you basis in the IRA. On the other hand, if you and your spouse are not covered by a retirement plan at work, the contribution will be fully deductible regardless of your AGI.

For 2010 and beyond, the $100,000 modified AGI limit on converting a traditional IRA to a Roth IRA has been eliminated, so you can convert that 2009 traditional IRA contribution to a Roth IRA in 2010 regardless of your AGI.

You must recognize the amount converted, except any basis, as income. However, any taxable income from a 2010 conversion will be included in gross income ratably over a two-year period beginning in 2011, unless you elect out of the two-year period and include all of it in 2010. This two-year rule only applies to 2010 conversions. Examine your tax situation to determine which year(s) to recognize any taxable income from a 2010 conversion.

Topic: Advice