No doubt, 2010 is a huge year for Roth Individual Retirement Accounts as well as the Roth IRA rates, which were made available to taxpayers of the United States in 1998. While it is a known fact that the contributions to a Roth IRA are not in anyway tax deductible, one of the rewarding features is that qualified withdrawals are free from tax.
Roth IRAs do not come with RMDs or required minimum distributions while the original owner is still alive. In addition, there is no age limit in making contributions, so as long as you are earning by providing your services, you can still place money in your Roth account.
Roth IRA Changes
One of the major modifications acknowledged as a component of Tax Increase Prevention and Reconciliation Act (TIPRA) was signed and executed as law on 17th of May, 2006. Another change that occurred and was enacted as a segment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) took effect on 1st of January, 2006.
2010 Conversions
Effective this year (2010) and beyond, TIPRA has taken away the $100,000 MAGI or modified adjusted gross income cap for contributors planning to convert their current IRAs and other qualified retirement plans to Roth accounts. It has also eliminated the condition that married couples should have a filing status of joint tax return to become eligible for a rollover or conversion to Roth IRA.
This particular rule modification permits more people to take advantage of the unique tax structure and benefit of Roth accounts as well as the Roth IRA rates. As an added feature in converting your retirement plans to Roth by this year, TIPRA has incorporated an elective provision that lets income from any Roth conversion made in 2010 to be covered as income over 2011 and 2012, rather than paying when 2010 taxes are due.
So if you are disqualified to contribute to a Roth IRA before because your income exceeds the set limits, this is the best time for you to complete non-deductible contributions to your traditional retirement account, and then carry out the conversions of the accumulated amounts to a Roth plan.
Employer-Sponsored Accounts
If your present employer gives you the opportunity to make contributions to a 403(b) account and/or Roth 401(k), consider Roth as an alternative for the traditional salary deferral plan if the following conditions apply:
- You still have a few years to set aside money for retirement and you don’t need any immediate access for your invested money.
- You belong to contributors that have low tax bracket at present, or you deem that your tax bracket will go up upon your retirement.
- You look forward in contributing to a Roth plan, but your earnings have been always too high for you to become eligible to contribute to Roth.
- You desire your beneficiaries to obtain as much money possible from the account and for them to not owe income taxes on qualified withdrawals.
- You don’t depend on the tax savings generated from your current contributions to your traditional 401(b) and/or 401(k) for your household expenditures.
Before opening or converting to a Roth IRA, it would be helpful to consult a financial professional first. This will guarantee that you’ll get the best Roth IRA rates today.