2010 ROTH IRA Conversion For All

If you have wanted to convert your IRA into a ROTH but make $120,000 / year as a single person or $176,000 as a married couple, well then 2010 is your year. The IRS is lifting the income limits in 2010 so that anyone may do a IRA to ROTH IRA conversion.

The benefit of a ROTH IRA is that all earnings are tax free. You contribute after tax money into it. This is the opposite of a 401k/IRA where you contribute pre tax money but all your earnings are subject to taxes when you start to receive distributions at age 59 and a half.

Along with the 2010 income limit removal, the IRS is also letting you spread out your tax liability over 2 years. So say for example you have $100,000 in an IRA that you want to convert to a ROTH. That $100,000 is tax free money, so to convert it to a ROTH you have to pay the taxes on the money being converted. So say you are in the 28% tax bracket, to convert $100,000 you have to come up with $28,000 in taxes. You can pay that $28,000 to the IRS over two years, rather than the one year a ROTH conversion used to require.

Due to people having to pay the taxes on the conversion many may not choose to do a conversion. A conversion to a ROTH makes since if the tax bracket you are in now is lower than what it will be at retirement. So you pay the conversion taxed which are based on a lower rate than what you would pay on your IRA distributions on a high tax rate. So it is up to you to decide if this is right for you.

If you don’t already have a ROTH IRA, I would suggest saving for retirement in the following order:

• Contribute to your 401k enough to receive the eligible company match (if any)
• Max out a ROTH IRA up to the max for that year
• Contribute more to your 401k up to the max for the year

A decision to have a ROTH IRA is something you should consider when planning your retirement strategy. ROTH IRA’s were always considered a government retirement vehicle that allowed you to save on taxed. There is no telling how long they will continue to offer tax free earning.

If you are looking to open a ROTH IRA, currently Etrade.com has a promo going where you can get 100 free trades when opening a ROTH IRA