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Earlier this tax season, we informed you that thanks to the new tax law signed on May 16, 2006, there are no income limitations on conversions of traditional IRAs to Roth IRAs for years beginning after 2009.

If you currently do not have a traditional IRA and you are unable to contribute to a Roth IRA because your modified Adjusted Gross Income (AGI) exceeds the contribution limits of $110,000 for single filers and $160,000 for joint filers, consider making non-deductible IRA contributions for years 2006 through 2009. Then in 2010, you can convert your non-deductible IRA to a Roth IRA. If this is the only IRA that you have, you will only have to report as income the converted amount that exceeds the sum of your non-deductible contribution.

However, if you have other IRAs in place, there are specific rules that determine how much income you will need to include on your return based on the type and value of all of your IRAs. A specific computation should be done in this case to determine whether a Roth conversion will be beneficial when you own other IRAs, especially rollovers from a qualified plan such as a 401(k) or 403(b).

Roth IRAs are not subject to the required minimum distribution rules that apply to traditional IRAs. In addition to tax-free growth during your lifetime, beneficiaries enjoy tax-free benefits when inheriting the Roth IRA.

Please contact your Rea & Associates team member for further information.

-By Frank L. Festi, CPA, CFP (Shareholder, Medina office)


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