Happy New Year 2010! The year of the Roth extravaganza!

by Evan on February 4, 2010

Happy New Year to all of my blog readers and clients!  2010 brings a new set of challenges, adventures, and fun to our lives.  It also means that the rules for opening a Roth IRA and converting to a Roth IRA have changed for the good.  No longer is there a restriction on being able to convert traditional IRAs or old 401k type accounts to a Roth.  Before 2010, one had to have a MAGI of under $100,000 to be able to convert accounts to a Roth IRA.   Now, anyone can convert a traditional IRA or 401k type account to a Roth IRA.  Of course, please consult a qualified tax specialist to make sure that you do this correctly, as there are tax consequences for the conversion.

Additionally, prior to 2010, taxpayers that made over a certain amount of money as defined at this link:

http://www.irs.gov/retirement/participant/article/0,,id=188238,00.html

were not allowed to make any Roth IRA contributions, at all.  Now there is a work around!  Money can be contributed to a non-deductible IRA (meaning, an IRA that you prepay the tax on the contribution) and then converted to a Roth IRA with no tax consequence, no matter what the taxpayer’s income is!

Conclusion:  This is a great way for people to take advantage of a retirement account that does not have any future taxation, especially if you think the government will be raising tax rates, like I do.  In addition, for 2010 ONLY, a taxpayer can elect to pay taxes on the Roth IRA conversion in 2010 OR spread the taxes evenly over the 2011 and 2012 tax years.  I have posted a link in my links section on the left side of the resources page describing what I have just written in this blog.  Have a wonderful year!