Yahoo Artice – February 5, 2008

“Come 2010, Roth IRAs may become the retirement plan of choice for all Americans. That year, Uncle Sam will lift the income limits on Roth IRA conversions that have precluded taxpayers with modified adjusted gross income of $100,000 or more to convert their traditional IRA to a Roth IRA.

What’s more, the government will even allow taxpayers the chance to report their conversions on their 2011 and 2012 tax returns, in effect giving Americans the ability to delay full payment of any tax due until 2013.

Roth IRAs, unlike traditional IRAs, are funded with after-tax dollars. And withdrawals from Roth IRAs, unlike traditional IRAs, are tax-free under certain conditions (after five years and after age 591/2). As with traditional IRAs, the money inside Roth IRAs grows tax-free. But one big difference between Roth IRAs and traditional IRAs is this: Roth IRA owners don’t have to worry about required minimum distributions.”

“…not surprisingly, advisers say, savvy savers should start planning now for what could be the opportunity of a lifetime in regards to conversion.”

Sweeping U.S. Tax Law Changes for Roth-IRA beginning Jan 1, 2010 favor doing a Roth-IRA Conversion in 2010 to get additional tax-free income that can stretch your retirement money further.

Q. Isn’t there a limit on who, or the amount you can convert, to Tax-Free Income?

A. There are NO RESTRICTIONS on the amount you can convert starting in 2010.

Q. I have heard there is an extra-conversion tax you have to pay up front?

A. Contrary to what you’ve heard, it is NOT EXTRA. This money will be taxed someday.
You can convert and pay the taxes due today or don’t convert and pay the taxes in the future.

Q. But I don’t have that extra money lying around right now…

A. Because of the special advantages for converting to 2010, you can skip payments for up to *2 1/2 years. And only pay 1/2 the amount in two payments.

Q. What happens if income tax rates go up?

A. If you think your personal tax rates are going to go up (and there may be good reason for that) it is best to convert now while taxes are at their lowest in years.

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The Roth IRA option

TurboTax.com Updated for tax year 2009

While most retirement savings plans are based on upfront tax breaks, with the understanding that your withdrawals will be fully-taxable in retirement, the Roth IRA offers an opposite approach.

You get no initial tax break, but all future earnings and withdrawals are tax-free as long as your account has been open at least five years and you are at least age 59½. Plus, since you contribute after-tax dollars, you are able to withdraw your contributions (but not your earnings) at any time, tax-free and penalty-free.

Roth IRAs are a great option for anyone interested in tax-free retirement income, and are particularly good for young workers who could benefit from decades of tax-free growth. Roth IRAs are also good for anyone who expects to be in a higher tax bracket in retirement.

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Suze Orman: Money Matters

Posted on Friday, June 2, 2006, 12:00AM

Original Article

I think the Roth IRA is one of the best investments, period. The money you put into a Roth garners no initial tax deduction, but your investment grows tax-deferred. And assuming you follow simple rules, you’ll be able to withdraw all your money after you turn 59 1/2 without paying any income tax.

And hey, if you need some money before you’re 59 1/2, your Roth can be a great emergency fund: You can withdraw any amount that you invest — regardless of your age or how long the money has been in there — without taxes or penalties. (It’s the earnings on your contributions that need to stay put to avoid a penalty and tax for early withdrawals.)

Overall, the Roth is quite a deal. Remember, all the money you withdraw from a traditional IRA or 401(k) will be taxed at your ordinary income tax rate — you don’t even get to take advantage of the lower long-term capital-gains rates.

But plenty of investors have been shut out of Roths — to be eligible to make a contribution, individuals must have modified adjusted gross income (MAGI) below $110,000 and married couples who file a joint tax return must have MAGI below $160,000.

The new tax bill creates a way for high-income individuals to get into a Roth. From 2010, anyone can convert money they’ve already invested in a traditional IRA — including SEP IRAs — into a Roth IRA. There’ll be no income limit. That’s a big change from the current law, which prohibits conversions if your MAGI exceeds $100,000. (An odd tax code quirk: That $100,000 applies to both individuals and married couples.)

Now, there’s one hitch: When you convert to a Roth, you’ll owe tax on whatever amount you’ve converted. That’s because you never paid tax on any of that money, remember? But that’s O.K. — after paying the tax today, you’ll never pay any tax in retirement.

And Congress is even giving you a nice bit of help with that tax bill — if you convert in 2010, you’ll actually get to spread your tax bill over two years: 2011 and 2012. That should ease your pain a bit.