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June 12, 2010

2010 Brings New Roth Opportunities

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Since it became available in 1998, the Roth IRA continues to increase in popularity at a high rate. This is largely attributed to its tax-free feature, which allows owners and beneficiaries to receive tax-free income from the accounts. Unlike traditional IRAs, where contributions are usually made on a pre-tax basis and earnings grow tax-deferred only to be taxed when withdrawn, Roth IRAs are funded with amounts that have already been taxed and withdrawals are tax-free if certain requirements are met. This feature allows for tax-free income during retirement.

Unfortunately, many individuals were unable to fund Roth IRAs because of the restrictions on funding-eligibility. If you are one of these individuals, we are happy to bring you the good news, that everyone is now eligible to fund a Roth IRA.
Roth Funding Options
There are two options for adding amounts to your Roth IRA:
1.You can make a Roth IRA contribution of up to $5,000 ($6,000 if you reach age 50 by December 31). To be eligible to make these contributions, you must have taxable compensation for the year, and your modified adjusted gross income (MAGI) cannot exceed certain amounts. For 2009/2010, you are not eligible to make contributions to a Roth IRA, if your MAGI exceeds the following amounts as determined by your tax filing status:
Year 2009 – Single: $120,000, Married-Filing-Jointly: $176,000, Married Filing separately: $10,000.
Year 2010: Single: $120,000, Married-Filing-Jointly: $177,000, Married Filing separately: $10,000.
2.You can convert amounts from your traditional, SEP or SIMPLE IRAs; or rollover eligible amounts from your account under an employer plan, such as a 401(k), 403(b), pension, or governmental 457(b) plan. For this option, you do not need to have income. Prior to January 1, 2010, you were not eligible for the conversion/rollover option, if your MAGI was more than $100,000, and/or your tax filing status was married-filing-separately. However, as of January 1, 2010, these restrictions are no longer in effect, allowing everyone who desires to do so to fund a Roth IRA through a conversion/rollover.
Is a Roth Right for You?
While the tax-free feature of a Roth IRA is attractive, it may not be suitable for everyone. When determining suitability, many factors must be taken into consideration. These include:
§ Your sources of income during retirement,
§ Your age,
§ If your beneficiaries include charities,
§ The amount of years you have until you retire,
§ The amount of years you plan to spend in retirement, and
§ Whether you have funds outside of your retirement accounts to pay any income tax that would be due on the conversion/rollover.
To determine if a Roth IRA is suitable for you, and whether it makes good tax and financial sense to convert/rollover your other retirement funds into your Roth IRA, contact us to perform a customized Roth IRA analysis, based on your Roth profile.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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