John M. Hoffman & Associates CPAs
Frequently Asked Tax Questions
Individual Retirement Accounts – IRAs
Even if you think your income is too high to benefit from ROTH you may be wrong. It requires a particular set of circumstances but there is a real opportunity here:
Let’s say that your income is too high for ROTH or deductible IRA and that your only retirement savings is at your place of work. You make non-deductible contributions of $4,000 per year to a traditional IRA for the next three years (2007, 2008, and 2009). Beginning in 2010 (under current law) there is no income limit on the ability to convert an IRA to a ROTH IRA. Let’s assume that the $12,000 of non deductible dollars that you contributed to that IRA have now grown to $15,000. On January 2, 2010 you convert that $15,000 account to a ROTH account. In order to do that, you must pay tax on the IRA withdrawal. Of the $15,000, $12,000 is that tax free return of contribution and only $3,000 is taxable. You pay tax on $3,000 (probably $1,000 or less in tax) for the right to get $15,000 into a ROTH IRA that can then grow tax free for life.
Interesting little opportunities that lurk in the fine print.
