The 2010 Roth Revolution
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Written by Morgan T. McDonald
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Tuesday, 27 December 2011 |
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The current year is proving to be a pivotal one for retirement savers. In 2010, law changes are initiating a Roth revolution, allowing nearly every U.S. investor to have a Roth IRA.
IRAs and employer-sponsored retirement plans, such as 401(k)s, offer tax-deferred savings opportunities for individuals. These options are beneficial if, at retirement, savers find themselves in a lower tax bracket or in a better position to pay the tax liability. But many are predicting that tax rates will increase in the near future--especially for high-wage earners--in order to reduce the mounting national deficit. The potential for higher tax rates down the road makes having options to manage one's retirement tax bill important.
Roth IRAs are one way to reduce tax liability in retirement and provide income flexibility. Not only are qualified Roth IRA distributions (withdrawals after five years and age 59 1/2, death, disability, or first-home purchase) tax-free to their recipients, but also such tax-free distributions are not included in income when determining the taxability of Social Security benefits. Plus, Roth IRAs offer estate and legacy planning benefits.
There are many reasons for investors to convert to a Roth IRA, but prior to 2010, not everyone qualified to have a Roth IRA. For 2009, married couples with modified adjusted gross income (MAGI) greater than $176,000, individuals with MAGI greater than $120,000, or married individuals filing separately with MAGI greater than $10,000 could not contribute to a Roth IRA. (For 2010, married couples with MAGI greater than $177,000, individuals with MAGI greater than $120,000, or married individuals filing separately with MAGI greater than $10,000 may not contribute to a Roth IRA.) Moreover, those with MAGI greater than $100,000 or married filing separately could not convert traditional IRA assets to Roth IRA assets. But that changes this year.
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Last Updated ( Tuesday, 27 December 2011 )
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Basic Estate Planning
