ave you heard of the ($156,000-$166,000) for joint tax
"non-deductible" IRA? I'm returns cannot fully fund a ROTH
not referring to the ROTH IRA. Those with Modified Adjusted
IRA, but a traditional IRA that Incomes of more cannot fund a
many people are stuck with as ROTH at all!
their only option (for various
reasons that make investing in You may remember that with ROTH
other types of IRAs unavailable). IRAs, there is no tax deduction
--- but the flip side is that
In those cases, the IRS allows when you take out the money
you to contribute to a properly... you don't pay income
traditional IRA, but NOT take a taxes! But I encourage everyone
tax deduction for it. that qualifies for a ROTH IRA to
contribute to one -- especially
You still get tax-deferred the younger folks!
growth, but during retirement
your earnings (interest and Also, workers who have a
capital gains) will be taxed, but retirement plan available at work
not the contribution amounts. such as a 401(K), may be excluded
from investing in a deductible
Did you know that Congress has IRA as well depending upon their
enacted a new law to encourage income. For singles with income
everyone to convert their of Modified Adjusted Income of
traditional IRAs (whether $52,000-$62,000 and joint filers
deducted or not) into ROTH IRAs with $83,000-$93,000 who have
during the year 2010. access to retirement plans at
work face restrictions on the
High income earners deductiblity of IRA
($99,000-$114,000) filing as a contributions.
single in 2007 and
So what are these people supposed thing!
to do to better prepare for
retirement? So if your income disqualifies
you from funding ROTH IRAs now,
They can (under most simply fund a traditional IRA
circumstances) invest in a (take the deduction now) or a
non-deductible IRA. Congress fund a non-deductible one,
recently made this planning depending upon your individual
option more attractive than ever circumstances. If you are under
due to new laws allowing you to age 50 you can contribute up to
convert these NON-DEDUCTIBLE IRAs $4,000 in 2007. Those 50 or over
into ROTH IRAs in 2010 - and do can fund up to $5,000.
so regardless of your income.
If you haven't funded a 2006 IRA
Plus, Congress made the deal even yet -- even if you already filed
sweeter for you. You don't even your 2006 tax return, you can
have to pay any income tax due on still do so. But only if it is
converting to a ROTH that year. prior to April 17 OR you have
In fact, the IRS will allow you requested an extension. Simply
to pay the income tax over two file the IRS Form 1040X to amend
years (2011 and 2012). So you get your return to include the IRA
a tax-free "loan" in 2010 (no deduction. (Ask you tax advisor
extra tax due that year) and then about this).
have two years to pay the tax due
for converting to a ROTH. Nice! So put as much money in these
accounts as you can and then
Then you have a ROTH IRA for convert them into a ROTH IRA in
which taxes will NOT be due when 2010. That year will be here
taking distributions during before you know it!
retirement. That is a very good
And it gets even better! growth) during retirement.
In 2010, even money in SEP IRAs For most people, the only money
and SIMPLE IRAs can be converted for retirement will be money that
to ROTH IRAs. This is going to be you sent ahead (and its growth).
a bonanza for the taxpayer in The more and earlier you send
that they are paying taxes on IRA ahead (save), the better for YOU.
balances then in return for NO
taxes on these funds (and their
About the Author:
Since 1997, Mark J. Orr, a Certified Financial Planner, has helped hundreds plan for more financial success through powerful strategies and advice. To get 101 FREE Financial Planning Tips and to Register for his complementary e-newsletter, simply go to: http://www.SmartFinancialTips.com
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Mark J. Orr, CFP
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