2009 Roth IRA info

5 things to know about Roth IRAs to save you money

The Roth Individual Retirement Account has long been recommended as one of the best tools for saving for retirement, and it looks even better in this economy. Participants in Roth IRAs don't get tax deductions for contributing to the accounts, unlike with traditional IRAs. But the value of completely tax-free withdrawals in the future generally outweighs the tax break from upfront deductions. Any withdrawals after age 59 1/2 are untaxed, there are no mandatory withdrawals, and the money transfers to heirs without income-tax strings attached. Other advantages also weigh in the Roth's favor in this environment. Here are five things to know about converting to Roth IRAs that could help you save money in the long run:
1. TIMING IS OPTIMAL
Account values have shrunk because of the stock market's decline, and tax rates are low by historical standards — and likelier to look even lower in retrospect if federal and state rates ultimately go up as expected. That means you can pay taxes on your IRA retirement savings now at a more favorable rate. You have to pay income taxes on the entire amount converted, or transferred, to a Roth account, so lower asset values help lighten your tax burden.
2. PARTIAL CONVERSIONS ARE POSSIBLE
You can choose how much you want converted to a Roth in any given year in order to avoid a huge tax hit, and a higher bracket. Step-by-step conversion over several years is possible.
3. YOU CAN UNDO A CONVERSION
If you convert your IRA to a Roth and something transpires to change your mind or your tax status, you have until Oct. 15 of the following year to undo it. That means if you converted last year before the market dropped, you may want to go back and undo it so you won't be stuck paying taxes on value that was subsequently wiped out.
4. MOST EVERYONE WILL QUALIFY IN 2010
Anyone with an adjusted gross income of over $100,000 (single or married joint filers) currently is barred from converting. But those income limits expire in 2010. Investors can spread the tax impact over a two-year period for 2011 and 2012.
5. YOU CAN TAKE USEFUL STEPS NOW EVEN IF YOU DON'T QUALIFY
If you can't convert now, you can still contribute to a traditional IRA now for both 2008 and 2009. Then you may be in good position to convert it next year at a favorable tax cost. "Whoever can convert to a Roth IRA now should do it," said Barry Picker, a certifi ed fi nancial planner in New York City. "And those that can't should be positioning themselves to do the conversion in 2010." — The Associated Press