Posted on February - 11 - 2011

The effect of the Roth IRA conversion rule changes

A big change is expected to hit the retirement planning strategy in 2011. On the other hand, the 2010 Roth IRA conversion rule changes seem relatively imperceptible. But as you know an imperceptible change can have great results. In fact, following the 2010 rule changes, more and more individuals will be able to convert a traditional IRA or 401k to roth ira and contribute to a Roth IRA in more efficient way.

Recently, the restrictions of the IRS on income limit the ability of high income earners to convert or contribute to a Roth IRA. But it’s all about to change. The monumental legislative change is the increased income limits on Roth rollover.

Under the recent law, you were eligible to convert if your modified adjusted gross income (MAGI) was $ 100,000 or less. If you happened to win more than $ 100,000 a year, you could not perform a conversion. However, from 2010, the $ 100,000 MAGI limit was lifted. Accordingly, more and more individuals can make a Roth conversion from January 2010.

For example, say you have a traditional IRA, and you earn $ 112,000 per year. In 2009, you can not convert your traditional IRA because your MAGI exceeds $ 100,000. But in 2011, you can convert your traditional IRA to a Roth because MAGI limit was lifted!

But the implications of changing the rule in 2010 go far beyond your ability to perform a simple conversion. You can compare roth ira vs ira, as there are many important differences. However, Roth IRA is different from the old plan and offers greater benefits. In the traditional IRA system, you get a tax deduction if you deposit pre-tax dollars. The process is not the same thing with Roth IRA because you must first pay the tax and contributions from after-tax dollars. For this reason, you do not need to pay taxes when you withdraw.

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Tagged Under : Changes, Conversion Rule, Conversion Rule Changes, Rule Changes

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