The Roth IRA: No Salary Caps when Converting Traditional IRA to Roth IRA (as of 1/1/2010)

The Wall Street Journal calls the Roth IRA "one of the most effective vehicles in which to accumulate money for retirement or heirs." However, the ability to contribute to a Roth IRA has always been limited to those single people with an adjusted gross income below $120,000; for married couples the salary limit to invest in a Roth IRA is below $176,000.

However, now the government, as of January 1, 2010, is opening up the rules of who may invest in the Roth IRA. The Wall Street Journal (WSJ) reports that as of January 1, the government will permanently stop the "income and filing-status restrictions on transferring money from a traditional IRA to a Roth." You may transfer a part of or all of a traditional IRA into a Roth IRA as of when these changes take place on January 1, 2010 according to the NY Daily News.

Thus people with high incomes that disqualify them from creating a Roth IRA, may use this new strategy to obtain this investment tool. While they still cannot directly contribute to the Roth IRA, they may create one via transferring funds from traditional IRA.

Income level limits are not set for the traditional IRA. Thus starting a traditional IRA now gives those at the higher income level a new way to ease those funds into the Roth IRA.

Do not forget though, that when transferring money from a traditional IRA to a Roth IRA, one does have to pay income tax on the part of the IRA withdrawal that is considered "pretax contributions and earnings" according to the Wall Street Journal.

Benefits of a Roth IRA

Tax Free (with required hold periods)

A Roth IRA is tax-free as long as the minimum holding periods are followed according to the Wall Street Journal. After converting a traditional IRA to a Roth IRA there is a five year hold period, or until age 59.5, notes the WSJ.

No Mandatory Distributions

The Roth IRA may be left in the account to build, tax-free without required distributions, even after age 70.5. This allows money invested to grow longer and cuts down on the logistics of making distributions.

Benefits for Beneficiaries

The Roth IRA that a relative will someday inherit from you will not require them to pay taxes on the scheduled withdrawals they will be required to make. Your heirs will appreciate not being stuck with a large tax bill after inheriting the Roth IRA.

As 2010 approaches, the Roth IRA is a widely recommended investment strategy to help prepare for retirement. The Roth IRA is a tool to help make your salary work its hardest to provide security for your future and for your heirs.

http://online.wsj.com/article/SB126004888014078557.html?mod=WSJ_hpp_sections_personalfinance

http://www.nydailynews.com