The Roth Imperative

A new tax savings opportunity debuts January 1st. High income earners will get access to Roth IRAs, because the income limit on converting a regular IRA to a Roth IRA disapprears. Currently, only taxpayers who have adjusted gross incomes of $100,000 or less are allowed to convert their regular IRAs to Roths.

Being able to convert to a regular IRA is the key to getting around incoem limits on direct Roth Payins. This year, those limits bar married couples with AGIs above $170,000 and singles with AGIs over $120,000 from making Roth payins.

Upper bracket filers can get a head start this year on creating a roth by setting up a regular IRA during 2009 and making nondeductible contributions to it. In 2010, they can convert it to a Roth IRA, paying tax only on the earnings. For individuals who already have IRAs with deductible payins, the tax treatment of the conversion is less favorable. In that situation, the tax free portion is based on the ratio of any nondeductible contributions to the total in all of their regular IRAs....tomorrow we will cover the speacil tax break that comes along with the year 2010.

Barry L. Bulakites