There are many questions about 2010 Roth IRA conversions that I couldn’t cover in the book. This page will answer some of the questions that I’ve received or read about and are not included in the book. Check back here often and please send me a question at steve@finpath.com and I’ll answer it here.
Roth IRA Basics
Q: Why is it called a “Roth IRA”?
A: It’s named after the chief legislative sponsor the late William Roth of Deleware. Roth IRA’s came into being as part of the Taxpayer Relief Act of 1997 so are a much newer animal compared to their cousins the traditional IRA that was born in 1974 when ERISA (the massive benefit legislation) was passed.
Q: If I convert my taxable IRA to a Roth IRA, will I be able to make contributions to the new Roth IRA?
A: If your modified adjusted gross income (MAGI) is less than the IRA limits you can make a direct contribution to a Roth IRA, but not if you make more than the contribution limits.
For 2010, you can contribute to a Roth IRA if your tax filing status is married, filing jointly and you make less than $176,000 or less than $120,000 if you file in single status.
But even if you make more than this amount, you can fund a Roth IRA. Anyone can make a non-deductible contribution to a standard IRA and then convert that amount to a Roth IRA.
Factors to Consider
Q: Do Roth IRA withdrawals impact the taxation of Social Security payments?
A: No. Unlike withdrawals from traditional IRAs, a withdrawal from a Roth IRA is not included when figuring your income for Social Security purposes.
Q: If I’m over 65 years old and decide to convert my taxable IRA to a Roth IRA, does the five-year holding period before I can take assets out apply to me?
A: Yes, you must wait unless one of the exceptions apply to you. To read more about the exceptions, refer to IRS Publication 590.
Q: Do the same rules apply to all states?
A: No. Wisconsin is the only state that did not adopt the Federal rules so if you live in the Badger state, you can do the conversion and you’ll face hefty taxes.
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