Roth IRAs have been around since 1997, but two recent changes may make them even more attractive. First, let's recap why you might consider a Roth.
Roth IRAs offer a trade-off. Unlike investing in most traditional IRAs, you give up the benefit of an upfront tax deduction. But the withdrawals you make in retirement are completely tax-free provided you meet the age and time requirements.
In addition, you don't have to start taking minimum distributions at age 70½. Whether this tradeoff makes sense for you depends on your age and other factors.
The prospect of taking tax-free retirement income whenever you want makes Roth IRAs very attractive. Currently, however, there are income limits on contributing to a Roth or converting another IRA into a Roth.
New conversion opportunity
The recent tax law introduced a new tax-saving opportunity. The new law removes the $100,000 income limit on converting a traditional IRA to a Roth IRA, starting in 2010. Also, if you convert in 2010, you'll be able to spread the tax over two years.
So, regardless of income, in 2010 you could convert any of your traditional IRAs to a Roth and pay the taxes in two installments. After that, the accounts would grow tax-free and would provide tax-free income when you retire.
You might even consider making non-deductible contributions to a traditional IRA in the years before 2010, then converting those into a Roth.
Roth 401(k)
You can now expect to see more employers offering Roth accounts within 401(k) and 403(b) plans. This feature, introduced on a temporary basis, was made permanent by the recent pension reform law.
You won't enjoy the usual 401(k) payroll deduction for contributions to these accounts, but earnings and distributions will generally be tax-free, just as with a Roth IRA. The advantages are that you can contribute much higher amounts than to a Roth IRA, and there are no income limits on making a contribution.
For more information on either of these new provisions, please contact our office.
Home
What's New
Legal & Financial
