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Question: Is it true that it will be easier to have a Roth IRA next year? I’m thinking of opening one or perhaps converting my regular IRA into a Roth.

Sophie Weintz

Answer:

Dear Sophie,

Yes. You’re absolutely right. Starting in 2010, several key rules making it difficult for people to open Roth IRAs will disappear.

The appeal of the Roth

The Roth has a number of things going for it.

When you reach age 59 ½, your withdrawals are tax-free, provided the account has been open for at least five years.
You’re not required to make mandatory withdrawals at any age.
You can continue making contributions forever, until you die.
If you leave your Roth to your heirs, their withdrawals will be tax-free.

The barriers currently imposed this year (2009)

Given the above four positives, there are some serious limitations to the Roth.

During 2009, you can’t contribute to a Roth if your modified adjusted gross income is over $176,000 (married) or $120,000 (single).
You cannot convert a traditional IRA to a Roth if your modified adjusted gross income is over $100,000 (married or single).
If your filing status is married filing separately, you cannot have a Roth unless you officially lived apart from your spouse for the full year.

The good news is these three restrictions end for the year 2010.

I recommend you use the retirement calculators at www.dinkytown.net to determine which IRA is better for you and if you should convert to a Roth.

Another source of information, of course, is the IRS at: www.irs.gov, in particular Publication #590, “Individual Retirement Arrangements.” In addition to the basics, it outlines the rules for converting from a traditional into a Roth.

Then based on your decision, get in touch with the support staff at BUYandHOLD if you wish to make changes to your IRA.

Good luck!

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