Roth IRA Conversion Opportunities Approaching

November 10, 2009Articles The Legal Intelligencer

Capital Gains

The Roth IRA, introduced as part of the Taxpayer Relief Act of 1997, is an attractive retirement savings vehicle. Unfortunately, only individuals with limited amounts of adjusted gross income, or AGI, are eligible to contribute to a Roth IRA ($105,000 for individuals and $166,000 for married couples in 2009). Although, individuals are permitted to convert a traditional IRA to a Roth IRA, this conversion privilege has only been available to individuals and married couples filing jointly with AGI not in excess of $100,000. However, commencing in 2010, taxpayers will be able to convert existing traditional IRAs into Roth IRAs without regard to any income or filing status limitations.

Like traditional IRAs, Roth IRAs allow for the tax-sheltered accumulation of earnings on contributed or rolled-over assets. Unlike traditional IRAs, contributions to a Roth IRA are non-deductible. However, Roth IRAs have several significant advantages over traditional IRAs:

  • Distributions from a Roth IRA are generally not taxed if the distributions are made after the IRA owner attains age 59½ (or on account of death, disability or for certain first-time home buyers) and the Roth IRA has been in existence for a period of five years.
  • A Roth IRA owner is not subjected to the required minimum distribution rules that otherwise require that distributions commence from a traditional IRA when the IRA owner attains age 70½.
  • Contributions can continue to be made to a Roth IRA even after the IRA owner has attained age 70½ (contribution to a traditional IRA must cease when the IRA owner attains age 70½).

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