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Roth IRAs are becoming a hot topic these days especially as we get closer and closer to next year. Right now in order to qualify to contribute to a Roth IRA, your modified adjusted gross income (MAGI) must be below $105,000 if your are single and below $166,000 if you are married filing jointly. There are phaseouts above those numbers of $105,000-$120,000 for singles and $166,000-$176,000 for married couples.
What about converting a regular IRA to a Roth? In order to convert a traditional IRA over to a Roth IRA, your MAGI must be less than $100,000 in the year of the conversion and you are not married filing separately.
When TIPRA (Tax Increase Prevention and Reconcilitation Act) was passed in 2005, it set for the income limits to convert a traditional IRA over to a Roth IRA to expire in 2010. This is a huge planning opportunity for those of you who have never been able to qualify for a Roth IRA but have built up a substantial amount of savings in an IRA.
Starting next year, you can convert your IRA over to a Roth IRA. You will have to pay taxes on the amount being converted based on your ordinary income tax rate. However the government is allowing you to pay these conversion taxes spread out over the next two years.
As a Baby Boomer, there are a number of advantages Roth IRAs will give you in retirement:
- Tax free growth for the rest of your life
- No RMD (required minimum distribution) like a regular IRA at age 70 1/2
- Shelter from expected tax increases over the next several years
Take a serious look at converting your IRA over to a Roth IRA next year in 2010. It may be the only chance you get!
Best of luck!
Carleton
McHenry Capital, LLC
McHenry Capital, LLC helps Baby Boomers on the verge of retirement overcome all their fears, worries, and anxieties they have and associate with retirement. We help our clients get crystal clear about envisioning the kind of retirement they want, and we create a real strategy to help them accomplish this. We work with our clients in what we believe is the fairest manner possible - a Fee-Only, Fiduciary, Product Neutral approach to ensure their best interests always come first. For more information, please contact us at 888-968-9815 or visit us on the web at www.mchenrycapital.com
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Urvi - yes converting to a Roth IRA is usually a "no brainer" for younger folks but it may be the right thing to do even for older people. Of course you never know about what the government could do in terms of changing the tax status of Roth IRAs so one should approach with caution. Thanks for sharing the IRA to Roth IRA link.
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