Rethink Your Rollover

Posts Tagged ‘2009’

Roth IRA conversion 2009

Question: In 2009 I am considering converting $200,000 in a Rollover IRA to a Roth IRA (I’m 44). ?

The amount converted will be taxed as income. I would not be able to pay all the taxes on this conversion by April 15, 2010. Would the IRS allow me to pay in installments over time? If so, what is this called by the IRS? (I want to do additional research on this).

Thanks,

Answer: I believe in 2010 you will be able to convert and pay the taxes over 2 years. You may want to wait until then. Also, do you meet the income limitations? Single contributors cannot make more than around $100,000. That will also go away in 2010. You certainly can convert part of it this year. Also, I think ( but am not positive check with an accountant) that you can pay the taxes out of the IRA itself–so you would have the tax money.

No RMD in 2009? Time for a Roth IRA Conversion

Roth IRA rollover 2009

Question: Had to recharacterize Roth contributions to Traditional IRA… now back to Roth in 2010?

In 2009 my husband and I each contributed $5000 to our Roth IRAs. We are a good 30 years from retirement. When we got our tax returns in order a couple of months ago we realized we had exceeded the limit for Roth and we had to recharacterize these contributions into Traditional IRAs. Now that 2010 is here and there is no income limit for rollovers, would we have to pay taxes on the rollover even though the contributions were already taxed in 2009?

A related question: If we were to contribute another $5k each for 2010 to the Traditional IRAs could we rollover this to the IRAs by the end of FY2010? In other words, is it possible to add the 2010 funds and then rollover? We are above the deductible income limit – so what taxes would then have to be paid in this scenario?

Answer: You are misusing the term “rollover.” If you are above the deductible income limit for traditional IRAs, it makes no sense to contribute to them – especially since you are 30 years away from retirement. Make your 2010 contributions directly into the Roth IRA(s) instead.

If you want to convert the traditional IRAs to Roths, 2010 is the year to do so because you can spread the tax bite out over two years.

Roth IRA Conversions – Spreading the Taxes

Roth IRA contribution limits 2010

When Is A Roth IRA Better Than A Traditional Ira?

Both a Roth IRA and a traditional IRA are government qualified retirement savings plans. But the Roth IRA tax properties of one can be a better deal for some people than those of the other. This article lists their tax properties and who may benefit most from a Roth.

Roth and traditional IRAs illustrate the two ways that these government-regulated retirement plans offer tax-advantages geared to foster saving for your retirement from working income. The traditional IRA, as for most qualified plans, is advantaged by tax-deductible contributions and tax-deferred growth of those contributions.

But withdrawals of all this ‘untaxed’ money during retirement are subject to income tax as they come out. Income tax rates are progressive so where your income is high, marginal tax rates will rob a significant fraction of your withdrawals. Further aggravating this tax loss is that traditional IRAs – as with most qualified plans- are subject to Required Minimum Distributions (RMDs) after your turn 701/2. And RMD rules increase the required withdrawal as you age.

Roth IRAs are tax-advantaged – on the other hand – by tax free growth of contributions and tax free withdrawals. The drawback is that they can only be funded by after-tax contributions. So, it’s more difficult to contribute to a Roth IRA for a given income – and more so the higher your income is.

But in addition to tax-free withdrawals, Roth IRAs have no RMDs. This allows you to leave your money in your Roth IRA to enjoy the benefits of tax-free growth.

Both tax-deferred and tax-free growth allows investment earning to grow faster – at a higher compounding rate than ‘annually taxable’ investments. And higher potential compounding rates are a significant advantage of all qualified plans have over investments subject to ‘annual taxation’.

Typically, people have a higher income during their working years when they make contributions to their qualified plans. And have a lower income during their retirement years. This favors making tax-deductible contributions while working and subject to higher marginal tax rates and withdrawing under low marginal tax rates in retirement. And the relatively lower is your retirement marginal rate compared to your contributing marginal rate – the better. And that’s true for both higher and lower earners.

But if you’re a higher earner and will have a high retirement income using a traditional IRA you’ll lose a lot of its benefits to high marginal tax rates in retirement especially under the forced MRDs. But higher earners are limited or prevented from contributing to Roth IRAs to dodge this circumstance.

Those with high retirement income probably also typically have high savings. So they’re not necessarily in need of pulling money out of their IRA – traditional or Roth – for retirement living. To them the Roth IRA serves as the perfect – and better- investment. It grows tax free and you needn’t withdraw from it. And if you do withdraw, high marginal tax rates won’t affect your tax-free withdrawals.

So the Roth IRA would serve their purposes better. But getting money into a Roth IRA for high earners is the problem.

Recent legislation has allowed higher earners to convert qualified plan money to a Roth IRA in 2010 – though direct contributions from their working income are still restricted or not allowed. Conversion of will require paying income tax on any qualified plan money transferred to a Roth IRA.

As an incentive to convert under the legislation, any amount converted during 2010 and be split so that half is taxed in 2011, and half in 2012. That can help lower the tax loss to convert.

High earners who contributed to traditional IRAs, who have a lot of savings, and who may not wish to tap their IRAs during retirement but leave it for a legacy ought to find a way to convert as tax-efficiently as possible to a Roth.

About the Author

Shane Flait gives you workable strategies to accomplish your goals in financial, legal, tax, retirement and protection issues. .
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IRA contribution changes

Roth IRA limits 2009

Cap salary filing joint on a Roth IRA

The Cap Salary Filing Joint on a Roth IRA: Roth ira maximum contribution Limits

Jason and Diane have Roth IRA accounts. They file their taxes jointly, so there are some important rules they should be aware of. First, anyone who has an IRA needs to be aware of the contribution limits. For a Roth IRA, the annual contribution limit is $5,000 per year. This means that Jason and Diane can each contribute $5,000 to their individual IRAs. The contribution limits may change each year. This is why it is so important to check annually to determine if the limits have been altered. These contribution limits are strict. You will be penalized if you exceed the limits; however, it is recommended that you do contribute the maximum amount allowed.

Jason and Diane are both 40 years old. Based on their age, they are only allowed to contribute $5,000 annually. If they were over 50, they would be allowed an extra $1,000 per year. This additional amount is a catch-up amount. It is only for individuals over the age of 50.

What’s The Cap Salary Filing Joint on a Roth IRA?

This term refers to the amount of income you and your spouse can record before the contribution limits begins to phase out. In 2008, any individual who filed their taxes jointly will begin to have a phase-out when their modified adjusted gross income reached $159,000. In the case of Jason and Diane, the cap salary filing joint on a Roth IRA is important information. In 2008, they made $145,000 for the year. This placed them very close to the limit. If either Jason or Diane received a promotion before the end of the year, they may have exceeded the income limits. If this happened, the amount they will be allowed to contribute to their IRAs would have begun to decrease. The amount of decrease will depend on how much they are over the limit.

Additional income rules state that if you are a widow or widower, there will be an additional $10,000 added to that amount, making the maximum income $169,000. If you are filing single or head of household, the phase-out begins at $101,000 and ended when the income reached $116,000. Since Jason and Diane file joint, they will be working with the $159,000 figure.

IRA contribution limits change each year. In 2009, these figures did change. Currently, if filing joint, the cap salary is $166,000. Jason and Diane did not have any changes in their income, so they still make $145,000 combined. They will not be affected by a phase out. For a qualifying widow, there was again the $10,000 increase. This means that for the year of 2009, the cap salary filing joint on a Roth IRA was between $166,000 and $176,000.

The cap salary filing joint on a Roth IRA will change each year. The changes in the limits reflect cost of living increases and inflation. Jason and Diane must stay aware of these changes. They are still close to the limit, and any salary change may place them above the allowed amount of income. To make sure that they will still be able to contribute to their Roth IRA, they must stay below the allowed amount, currently $166,000 per year. If they lose the right to contribute to their IRA, it could result in large savings losses.

When dealing with a Roth IRA, like Jason and Diane, the amount they are allowed to contribute is based on income. When the allowable amount is exceeded, the amount they are able to contribute will begin to phase-out. Since Jason and Diane file their taxes with the status of married filing joint, they must be aware of these limits. If their income goes above the allowed amount, reaching or exceeding the cap salary filing joint on a Roth IRA, their allowable contributions may actually be reduced to zero!

About the Author

Best IRA Rescue provides services on your IRA investments and traditional IRA and will help you reduce your inherited and beneficiary independent retirement account taxes in your estate assets. Roth on ROIDS is your advanced Roth IRA retirement planning strategy and one of the best IRA tax-savings strategies with benefits of a guaranteed death benefit, guaranteed principal, tax-free growth, and tax-free distributions from policy loans.
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Question: Roth IRA accounts and contribution limits?

I have a roth ira account . Does anyone know the limit on how much you can contribute for the year 2009 in that account. I know there is a limit. thanks

Answer: For 2009, you may contribute up to 100% of earned income (wages, net self-employment income, etc.) or $5,000 (6k if you're age 50 or older), whichever is less.

Disclaimer. The information in this response is for general purposes only, and shall not be construed as specific tax, legal, or investment advice for any individual. The questioner is urged to contact their own professional advisers before implementing any tax or investment strategy.

ira mandatory withdrawal

Question: IRA and 401 K Mandatory Withdrawals for 2008. Tax Status.?

McCain and Obama suggested deferring the required withdrawal of assets from retirement accounts.
Is anyone in congress proposing a bill to give seniors Relief in 2008?
Yes wartz I said McCain and Obama both proposed it. Has anyone in congress actually initiated a bill? Who?
Judy. What you probably don’t understand is that the tax on funds withdrawn at the end of 2008 is based on the maket value at the beginning of the year. This makes mandatory withdrawals a double wammy for seniors. Sell at 65% tax at 100%.
Sale of non sheltered stocks are taxed at date of sale and at a capital gains tax rate. (triple wammy)
vb. Sorry. My comment about non sheltered stock was the fact that the tax on those is at 15% capital gains rate at the time of sale. The tax on 401 k stock (forced) sales is at your income tax rate at their value at the beginning of the year. (35% higher) Tripple wammy!

Answer: You are skewing the issue.

Let's say your life expectancy was 10 years. Thus your RMD (required minimum distribution) would be 1/10th of your account balance on 12/31/2007. If you hadn't taken any of the money out before the market crashed, you may feel like you are being forced to take 20% out and depleting this resource. The actual tax is still based on the dollar amount taken out, so the tax bill is NOT higher than you estimated at the beginning of the year. Thus saying "sell at 65%, tax at 100%" is mathematically wrong.

Your added comment about selling "non-sheltered stocks" being a 3rd whammy makes no sense--unless you are complaining that you now have a loss and can't even take it after the first $3000.