Roth IRA Limits 2010 Planning For Retirement

Roth IRA Limits 2010

The majority of the people I’ve encountered haven’t prepared for their retirement. For many of us, contemplating something that is as undecided as the future does not make sense. The challenge with that reasoning is that what we achieve today will determine our future.As opposed to the plain fact, almost all the retirees live a dynamic life. When we think of retirement we usually look at senior years, a time when you must quit the career and sit at home wasting away. We need to decisively embark on planning towards retirement because after we retiree our revenue ceases to flow but our expenditures continue to be as it is along with a few cases it rises with the rising inflation. A Roth IRA being managed by specialists is often a answer to powerful retirement planning. They will be used to form a plan which could give you the amount you would like by the end of your respective career.

So what on earth is known as a Roth IRA? It is a specific kind of retirement account that’s named after the senator, Sen. William Roth from Delaware, who backed the legislation creating the Roth IRA. Contributions into a Roth IRA are not tax deductible that year that they are made. The advantage to the Roth IRA is that the contributions grow tax-free and are not taxed whenever you retire.There isn’t any Roth IRA Limits 2010 or any year on growth

Roth IRA Limits 2010

Roth IRA Limits 2010

Starting in 2010, the prevailing $100,000 income test for converting a regular IRA to a Roth IRA no more applies. Conversions that happen in 2010 can have one half of the taxable converted amount taxed during 2011 and also the other half taxed in 2012. (On May 17, 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 into law. This tax bill included a provision dealing with conversions of traditional IRAs to Roth IRAs.) Since Roth conversions increase tax revenues, it appears unlikely the previous income ceiling will be reinstated in the near future.

A Roth IRA Grows Tax Free. There are No Roth IRA Limits 2010 or any year on growth.

How do we open a Roth IRA? You must have income underneath the income limits and that income has to be taxable earned income. This is limited to taxpayers who have earned under the allowable AGI or Adjusted Gross Income can open a Roth IRA. This amount fluctuates from year upon year so check utilizing your tax advisor.

1. Roth IRA Limits 2010-2011

Contribution limits have stayed at $5,000 for 2010 and 2011. Are you 50 and over? Catch up contribution remain at $1,000 for a total of $6,000. It’s still up in the air whether Roth IRA limits will increase next year, so stay tuned.
Contribution Year 49 and Under 50 and Over (Catch Up)
2009 $5,000 $6,000
2010 $5,000 $6,000
2011 $5,000 $6,000

2. 2010 is the Year of the Mighty Conversion

If you haven’t heard of the 2010 Roth IRA Conversion event, then you obviously haven’t visited my blog before. That’s okay, I forgive you. 🙂 While 2010 is the actual year that you will be able to convert, the income to be claimed can be deferred until 2011 and 2012. Expecting a vast majority to take advantage of this, the IRS has set up special provision on how the tax will be paid. The IRS has granted you the option to claim 50% of the conversion amount as income in 2011 and the remaining 50% in 2012. Keep in mind that this is only in 2010. After 2010 the taxes will all be paid in full the following year going forward.
3. The “Take Back” Rules

If you plan on converting your Traditional IRA’s and 401k’s into Roth IRA’s, I suggest you do it sooner than later for a few reasons: 1. The market is still in a recovery phase and you could benefit from converting when your account balances are lower and pay less income tax. 2. If that strategy backfires, you can always do a Roth IRA Recharacterization, better know as the conversion “take back”. A recharacterization allows you to reverse the conversion completely. This could be the case if the market were to tank again or if you had an unexpected increase in income which would make your tax liability more than care to share with the IRS. You have until October 15th of the calendar year after the year you converted to recharacterize. For 2010, that would be October 15, 2011.
4. Phaseout Limits Did Increase….Barely

Wage earners that are on the outside looking in when it comes to a Roth IRA didn’t get much help in the phaseout limits. Single filers received no improvement, while joint filers increased a whopping $1,000 to the bottom and top ranges. Don’t worry though, you may still be in luck.

Roth IRA Phase Outs For 2011

Once again phaseout limits did increase for 2011, but barely. The limits have increased between $1,000 and $2,000 this year.

For Roth IRAs single taxpayers with an annual Modified Adjusted Gross Income (MAGI) over $107,000 begin to see their contribution limit decrease until at $122,000 it goes away entirely. The contribution limits for Married Filing Jointly investors are $169,000-$179,000. (You can see last year’s limits above).

5. Roth IRA- Phased Out But Not Out

Many people have wished to use the Roth IRA for the past years, but couldn’t since they surpassed the Roth IRA phaseout limits. Many then settled for the pretax substitute of the traditional IRA. One problem with the traditional IRA (apart from paying taxes at retirement) would be the fact after certain income limits you will no longer get a tax deduction for making contributions to one. You continue to get the tax deferred growth, but that’s it.

Still there is no Roth IRA limits 2010 or any year on growth.

If you are an active participant (making annual additions or accruing a benefit) inside a company plan making greater than $65,000 as a single taxpayer in 2009 (or $109,000 being a married joint taxpayer) then you are disqualified from utilizing the full deduction. What you’re then left with will be the nondeductible IRA.

Introducing the Nondeductible IRA

In the past, there was clearly nothing very attractive about the nondeductible IRA. With 2010 just around the corner, the nondeductible IRA has become a very well liked tool to permit high wage earners a way into the Roth IRA- a “backdoor” way. A high wage earner can make contributions to a nondeductible IRA with the sole intentions of converting it during 2010.

By making contributions to the nondeductible IRA, you’ll be responsible to pay what gains you’ll have from now until you convert in 2010. If 2009 was the first year to contribute, then should you not get lucky and pick a one out of a million shot, your tax liability should be minimized.

6. College Savings As a Backup

Traditionally a Roth IRA is utilized to save for retirement. Many do not realize that there’s a provision which allows you to withdraw out of your Roth IRA to cover “qualified higher education” expenses while avoiding the 10% early withdraw penalty. (This is applicable to the income, you can withdraw your contributions at any time). Who is this right for? 529 college savings plans really are a superior way to save, but if you’re behind in saving for retirement then this strategy might suit you. It’s preferable to have extra savings tangled up inside the Roth versus a college savings plan that might never get used.

7. Direct Rollovers From 401k’s to Roth IRA’s Just Got Easier

Ahead of 2010, it was a problem attempting to convert a 401k right into a Roth IRA. First, you had to setup a traditional IRA and then roll the 401k into a traditional IRA. Then you would need to open a Roth IRA account and then complete the conversion paperwork. Once the conversion was complete, you’d then close the Traditional IRA since it wasn’t any longer needed. (That paperwork for nothing.) But that was then and this is now. Beginning in 2010, you’ll be able to direct rollover your 401k right into a Roth IRA and skipping the avoidable middle step.

Know the Roth IRA Limits 2010 to make sure and take advantage of the rules.

Roth IRA Limits 2010