Thursday, November 12, 2009

Taxes and Roth IRA

Haven't posted in a long while due to various reasons. And guess what, economy is not better since my last post. In fact, it looks like it might be worse. In addition to California, 9 more states are in trouble
http://features.csmonitor.com/economyrebuild/2009/11/11/pew-report-nine-states-join-california-in-facing-fiscal-crisis/

For all of us, it means only one thing: more taxes. On everything. ( I had to renew my car registration- it's $186 for 2 years, compared to the previous $ 120 !!)
So this change for Roth IRA rules for 2010 becomes more and more attractive- you will be able to roll over your traditional IRAs into Roth IRA regardless of your income, obviously paying taxes on gains( this can be spread over 2011 and 2012). But since a market took such a hit lately (with some latest recovery), it might be that you won't owe anything in taxes, since you pay taxes on the conversion amount.
They can start taxing Roth IRAs too, sometime in the future, however...

2 comments:

drsam said...

Glad to see you posting again!

Can you elaborate a bit on the Roth IRA changes you mentioned?

I'm not familiar with this.

Thanks!


p.s. Maybe I'll take some inspiration from you and get off my butt and put a new post or two on my own blog!

Docblogger said...

DrSam,

As of now, the contributions to Roth IRA are limited to those whose adjusted gross income is not higher than $176K for couples and $120K for single filers.
Starting in 2010, this income limitation will be removed and anyone can roll over their traditional IRAs into Roth IRA( you still will not be able to contribute to Roth IRA directly- I don't know why)
So if you had a traditional IRA funded with after-tax dollars ( that is, if your income was "too high" to deduct your contributions to traditional IRA), upon rolling over your funds from traditional IRA into Roth you'll owe taxes only on growth within that account. For instance, if you, over the years, contributed 20K to your traditional IRA, and now it's worth 25K, then upon rolling over, you'll owe taxes only on that 5K.
Now, the good thing- since the market took a hit lately, those 20K you've contributed very well may be worth only 18K now. Then, upon the rollover , you'll have no tax liability
Hope it helps