Now that Roth IRAs are undergoing a rule change, people at higher income levels can get access to these highly desirable accounts. Read on to learn what the new rules do and don’t allow you to do, as well as how best to convert to a Roth and the pros and cons of doing so.

• On January 1st, 2010, the government is removing the income restrictions that prevent some individuals from converting to a Roth IRA.
• Roth IRAs are desirable because there are virtually no taxes on withdrawals – for you or your inheritors – and you aren’t required to start making withdrawals when you reach a certain age, as is the case with traditional IRAs.
• The obstacle to conversion is that you have to pay taxes to do so, and since you can’t pick and choose which assets to convert, these taxes are often quite high.

Facts & Figures

• Currently, you can’t open a Roth IRA if your modified adjusted gross income is more than $120,000, or $176,000 for married individuals who file joint tax returns. These restrictions will stay in place in the future.
• The restrictions that will be eliminated are those on converting to a Roth: currently, you can’t convert if your modified adjusted gross income for your entire household is more than $100,000. In addition, someone who is married but who files an individual tax return can’t convert regardless of his or her income.
• The government is providing a special deal for those who convert to a Roth in 2010: they can split the taxes they’re charged for the conversion over 2011 and 2012.

Best Quote

“If I can take a portion of my assets and shift them over to a Roth, am I going to sleep better knowing they can’t be touched by future tax increases?” – Ben Norquist, president of Convergent Retirement Plan Solutions LLC

Tags: IRA, retirement, ROTH, taxes