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Roth IRAs can give you great tax and investing advantages if you qualify. With a Roth IRA you can save and deposit up to $2,000 a year ($4,000 for married couples) if your adjusted gross income (AGI) doesn't exceed $95,000 for singles or $150,000 for married couples (it phases out after that, and is gone totally at $110,000 and $160,000 respectively). Unlike traditional IRAs, there is no tax deduction for the money you put in, but the earnings you build can be withdrawn entirely tax free. Here are some key points:
For a great article on Roth IRAs, click here | Converting other IRAs to Roth You can roll over a traditional IRA into the Roth IRA, a process known as "conversion." The cost of converting an IRA is that the entire amount of the IRA (excluding nondeductible contributions) becomes taxable in the year of conversion (the pre-age 59 ? penalty tax is not applicable to conversions). Not all IRA owners are eligible to convert or contribute to a Roth IRA; as with opening a new Roth account, there are income limitations. The 1997 Act specifies that anyone with an AGI over $100,000 (regardless of whether filing joint or single), or who file married but separate are not able to covert their IRAs. SEP-IRAs and SIMPLE-IRAs may also be converted, but only after two years of plan participation. The reason for this restriction is that conversions during the first two years of plan participation allows one to take distributions from the Roth IRA at the 10% penalty tax instead of the 25% penalty tax applicable to SIMPLE-IRAs. Direct rollovers from qualified retirement plans into a Roth IRA are prohibited. This really is just a procedural inconvenience because nothing prohibits one from effecting a direct rollover into their traditional IRA, then converting that IRA the next day into a Roth IRA. For a great article on conversion, click here |
