I have written many posts about Roth IRAs and all the advantages of having a Roth. I have not updated these posts as the Roth IRA facts haven’t changed that much in the last 2 years. I felt it was time to talk about some of the changes for 2010 in the US tax code, and how some of these changes relate to the Roth IRA.
Our government spent a ton of money in 2009 and you know they are thinking about raising taxes as the liberals always think that they can take more of our money when they need it. With this in mind, I think it is likely that taxes are going to go up in the next few years, whether that is what they are saying or not.
1. The major change for 2010 is the lifting of the income restrictions allowing more people to convert other retirement accounts to a Roth IRA. This is great news for many people who made too much money to have a Roth IRA. You have to consider whether you can “afford” to do this, as you have to pay taxes on the conversions. Many people who want to do this are thinking that taxes will go up in the future, so it’s better to pay them now. That is a choice that is up to you. This becomes effective January 1, 2010.
Of course, how soon you need the funds is a big consideration also. Funds that you roll over to a Roth IRA must remain in the account for five years.
2. Anyone with earned income can contribute to a Roth IRA. Eligibility begins to get phased out for single taxpayers with an adjusted gross income above $105,000 and married taxpayers above $166,000. This is something to keep in mind. You can put in $5,000 in 2009. (plus an extra $1,000 if you’re age 50 or older).
3. Contributions are not tax-deductible. Withdrawals are tax free! That is the key for Roth IRAs. As long as you are 59.5 years old and have had the money in there for 5 years. You don’t have to take the money out by 70.5 either. You can will the Roth to your kids.
4. Finally , why is it called a Roth? It is named after Senator William Roth who was instrumental in getting the legislation approved.