Non-Deductible IRA Conversion to Roth IRA
It is my understanding that regardless of income, one can contribute to a non-deduct. IRA in 2009 ($6,000 for Husband and $6,000 for unemployed wife – both over age 50) and then again in 2010. Then, this IRA can be converted to a Roth. Will this same approach be available beyond 2010?
Permalink Submitted by Anonymous (not verified) on Fri, 2009-10-16 21:53
Pre-2010 there are income limits that prevent you from contributing directly to a Roth, if you earn too much. Therefore your approach makes sense in 2009. Post-2009 these income limitations dissapear, so you can directly contribute to the Roth.
pmk
Permalink Submitted by Troy Buckler on Fri, 2009-10-16 22:54
Actually, I think income limits still apply to Roth contributions in 2010, just eliminated for conversions. To quote an expert:
“No, the Roth regular contribution MAGI limits are not being eliminated. There probably will not even be an inflation adjustment for 2010 over 2009 since inflation is so low over the past year.
Therefore, if taxpayer cannot qualify for a regular Roth contribution, they can still convert as much as they wish starting in 2010. Making a non deductible TIRA contribution can be done without a maximum income limit, and then a Roth conversion can be done. However, the pro rate rules apply to taxation of that conversion, so if the investor has rollover IRAs or other pre tax amounts in IRAs, the 6,000 in non deductible contributions is not going to reduce the taxable portion of a conversion by much. If the non deductible contribution is their ONLY TIRA, then the conversion will be tax free if done immediately.” –cut and paste from a post by Alan-Onirus
Troy
Permalink Submitted by Alan Spross on Fri, 2009-10-16 23:38
But there are no maximum income limits for non deductible TIRA contributions. Therefore, these contributions can be made year after year and converted to a Roth, essentially replacing regular Roth contributions where the income limits persist. These conversions are subject to the pro rate rules for all TIRA accounts as stated earlier.
Since the income limit for regular Roth contributions can be circumvented so easily, perhaps future changes will be made that could alter these rules.
Permalink Submitted by Anonymous (not verified) on Fri, 2009-10-16 23:41
Yes, sorry. I was thinking of the conversion rules change in 2010.
pmk