Why Should You Convert Your IRA to Roth on January 1, 2010?

Change is on the horizon in the Roth IRA world. Currently Roth IRA conversions are limited in 2 ways

1. Taxes on pre-tax amounts
2. Income limits (these are quick generalizations see IRS pub 590 for more info.)

A. If single AGI, adjusted Gross income is 116K or more then you cannot contribute
B. If AGI is 159K+ as a couple you could not contribute to a Roth.

What is going to happen in 3 months is revolutionary!

Why you ask? One of the best things President Bush did in 2006 was sign a $70 tax cut that changed the rules. In case you wanted to know the actual bill was called the "Tax Increase Prevention and Reconciliation Act of 2005." it was signed into law May 17, 2006.

Why this is so extraordinary for you, the average American, and all my friends and family? Well it's because of the income limits have been lifted! If you convert Non Roth retirement accounts in 2010. The taxes due can be spread over 2 years. This applies to conversions done only in 2010. Keep reading for why this is such a big deal.

That law is notable for Roth IRA investors because starting January 1, 2010; anyone can convert an existing IRA into a Roth IRA. That means regardless of income level you can have a Roth IRA and reap the all benefits of it. Now every American can use this benefit to their advantage for their retirement. To make it an even better reason to do the conversion our Uncle Sam has allowed you to pay the taxes of the conversion in the 2 following years, 2011 and 2012. This is just for the 2010 year though. After 2010 you will have to pay the conversion taxes in the same year as the conversion. Certainly a more painful option if the sum you're converting is a large one. So if you have a large amount you want to convert into a Roth 2010 is the year to do it.

I hear some of you asking. How long will this last? The IRS says that the new Rules will be in effect and there is no deadline. However Uncle Sam seems to change his mind once in a while. I wouldn't count on absolutes from the IRS and take advantage of the conversion in 2010. Especially since the tax burden can be spread over 2 years. In reality if you do it on January 1 you'll gain an extra 3.5 months to give you a total of 27.5 months to earn money to pay the taxes of the conversion. That way you're not using the precious Roth IRA nest egg funds to pay it. Certainly due to the fact that this will cause tax revenues to increase it doesn't seem that the income limits would be imposed. However the government has done strange things in the past. Get my drift?

Are you asking yourself why would I want to do this? The biggest reason I can think of to do this in 2010 is allow your retirement money the longest time horizon possible to get the most out of the power of compounding. The longer you can have your money in a tax free environment, the more you will have in the end. Remember with the Roth IRA any distributions in retirement are 100% Tax Free! So why wouldn't you want more of your own money, the money you worked so hard to save?

Now, I know you, and all my friends, are going to do this conversion in January 2010. Please, please, do yourself a favor. Pay the dreaded conversion taxes to our beloved Uncle Sam outside of the Roth account, if at all possible. Not from your retirement funds. You will be accelerating the growth of your new fledgling Roth IRA by many years by doing so, thereby achieving your goals much faster than if you use your IRA money to pay those conversion taxes. Those Roth IRA nest eggs are precious.

One of you may be thinking "What if you don't already have a Roth account?" and you can open one under the current rules. Then run and do that today. Put in the max allowable amount. That is 5K if you're under 50 and 6k if over 50. In 2010 rollover as much as you can, depending on the length of time to retirement.

I'll bet one of you or my friends will say something like this. "I don't have a lot of time till retirement". I know this isn't for everyone however if your timeline to retirement is close say 5 years. You still might want to do this anyway, maybe not all your non Roth accounts but some.

Here's why I say that, I have a few ideas I'll share in later posts on my blog http://www.TheTaxFreeInvestor.com on how you can create a legal Tax Free income during retirement. Stay tuned for that.

Disclaimer: Before converting an existing retirement account, be sure to talk with your tax professional to make sure you have a clear understanding of how the tax rules would affect you. Be sure to talk with a professional before doing anything I suggest.

I'm an individual Self Directed Roth IRA investor. I'm blogging at http://www.TheTaxFreeInvestor.com about my adventures in using my Self Directed Roth IRA, how I'm Investing my Roth IRA retirement funds, in investments that I understand, and for maximum returns. I'll show you, all my friends and family, how I do this, and why. You can do this also to maximize your retirement or not, but come along for the journey no matter what. It'll be fun for sure.

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What Are the Rules For 2010 401k Contribution Limits?

If you are looking to save for retirement, there are many options out there that are available to you. All things considered, most people want to be able to maintain their current lifestyle, if not a better one, when they retire. In order for this to happen though money has to be put back in a way that it will continue to grow. A 401k has tax exemptions that go along with it; but, there are certain stipulations that apply to 401k contribution limits as well.

A contribution is made when money is placed into an account from a paycheck or through other means. A traditional investment plan, such as a 401k, can be obtained through an employer, if offered by the company, or if you are self employed. The choice can also be made to have the funds withdrawn automatically from your pay every pay period in a specified amount. In some instances, employers will match the contributed amount.

For the upcoming tax year 2010, the 2010 401k contribution limits are $16, 500 for individuals under 50. For those over 50 the total is $22, 000. This limit applies to 401k and Roth 401k plans.

Taking too much money out of a 401k can increase your tax bracket. If you are at least 59 ? you can withdrawal money from this account just remember the chance you are taking.

Contributions made to 401k plans are tax free. Considering other investment plans, this is a major benefit of the 401k. The only time that taxes are withheld is if you make a withdrawal.

What is the benefit for you in investing in a 401k? In the long run, that the money that you put in the 401k is not taxable when it is invested. Your money has an opportunity to gain interest over time. When you withdrawal the money, it will be taxed.

Saving money over time can work to your advantage. With 401k plans, the money you invest earns interest. Due to the way these plans are setup, you earn interest on the interest, or compound interest. As stated previously, the contributions are not taxable.

When investing in a 401lk, the individual, in most cases, decides where the money is invested at. Bonds, stocks and mutual funds are the variety available. Since 401k plans offer a steady but slow growth, choosing a safe investment is the popular way to go.

There are different companies out there that can help you with your investment strategy. These companies normally offer advice and options for saving for retirement. In the end though, the choice is yours.

As mentioned before there is a 401k plan called a Roth 401k. With this plan, you can make additional after tax contributions and the gains from it can be withdrawn tax free.

The government has setup these tax breaks in an effort to help the consumers out. Do your best to contribute the maximum allowable amount to these plans. It is in your best interest to do so. Not to do it, is counterproductive for you.

For the latest 401k limit info, such as the latest 2010 401k contribution limits you can find a breakdown at the site. Similarly, you will find data on the lesser talked about Roth 401k, which comes with a number of advantages.

Article Source: http://EzineArticles.com/?expert=Frank_Rodriguez

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Roth IRAs Poised to Surge in 2010

Roth IRAs are about to experience a surge due to a long-awaited tax-law change that will finally take effect January 1, 2010. It is expected to open the floodgates for wealthy and upper-middle class taxpayers.

The allure of Roth IRAs is that distributions made out of a Roth IRA are never taxed. In effect, taxpayers become immune to future tax increases enacted by Congress. Roth IRA owners, thus have an effective tax rate on Roth IRA distributions equal to 0%, forever. The ability to contribute to a Roth IRA has always been limited if an individual taxpayer's adjusted gross income exceeds a specified amount, adjusted for inflation. Thus, wealthy taxpayers, without any other retirement plan, had to rely on making traditional IRA contributions, which impose no such income test. The upside for traditional IRAs is that contributions are tax deductible. The downside is that future distributions are subject to income tax at the rate in effect when the distribution is made.

Given the immense size of the federal deficit, almost every tax professional has been advising their tax clients that tax rates must go up in order to increase tax revenues to meet the future cost of government. In order to immunize their tax clients from the cost of future tax increases, tax professionals were advising their clients to convert as much of their traditional IRAs as possible. Some taxpayers were eligible to convert their traditional IRAs into Roth IRAs and pay the requisite tax on the accumulated earnings. However, many higher income taxpayers were unable to make the conversion due to an income limitation known as the $100,000 limitation. The $100,000 limitation prohibits taxpayers from converting their traditional IRAs into Roth IRAs if their adjusted gross income exceeds $100,000 in the year of conversion. So for many years, due to these two Roth IRA income limitations, wealthy individuals have been forced into making contributions to traditional IRAs in lieu of Roth IRAs, and were prohibited from converting their traditional IRAs into Roth IRAs.

But that is all about to change. Effective January 1, 2010, the $100,000 limitation is going away forever. Furthermore, any taxpayers who convert their traditional IRAs on January 1, 2010 to Roth IRAs will be able to defer the requisite tax on the accumulated earnings over two years beginning with tax year 2011. If a taxpayer converts a traditional IRA to a Roth IRA in 2010, he or she may elect to spread the tax hit over 2011 and 2012, with no tax payment required in 2010.

Call your tax professional today if you have traditional IRAs to evaluate if conversion to a Roth IRA is right for you.

Tom is a Certified Public Accountant, a Certified Financial Planner, CLTC (Certified Long-Term Care) and President of Cerefice & Company, the largest CPA firm in Rahway, New Jersey. Tom works with clients helping them manage their money, retirement planning, college savings, life insurance needs, IRAs and qualified plan rollovers with an eye towards maximizing tax benefits and minimizing taxes. Tom is founder of the Rich Habits Institute and author of "Rich Habits".

Article Source: http://EzineArticles.com/?expert=Thomas_Corley

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How to Roll Your 401K Into an IRA

If you are recently unemployed or your company has just changed ownership, you have the opportunity to convert the existing company 401K to an IRA, otherwise known as an individual retirement account. Many people are intimidated by the prospect of this conversion but in reality, it is quite simple and offers many benefits.

The best reason to transition from a 401K to an IRA is that the number of investment choices you will have in an IRA is almost unlimited, while the company sponsored 401K plan will only allow a handful of options. You can begin to choose stocks or mutual funds based on your own research and preference, which in turn can be fun and rewarding. IRA's can be opened at your local bank or an independent or online brokerage firm such as Scottrade. I prefer the latter because the fees associated with transactions are minimal.

Once you decide where you want to open your IRA, the chosen institution will provide an account number and form for which the 401K plan administrator can send the distribution check. This process can take several weeks or more. Once the money has been transferred, it will sit in a money market account. You can then begin researching stocks or mutual funds that you would like to allocate the money into. The allocations occur as a "buy order" that you place for your selected investment choice.

Great sources for researching investment options are Morningstar, MSN Money and Yahoo Finance. You can establish the rating on the stock or fund with Morningstar which uses a 1 to 5 star system based on the associated performance and risk of the investment. Another category to look at would be the percentage of return based on 1, 3, 5, 10 and 20 years. A third category to pay attention to are loads and expense ratios. These are the management fees associated with your particular investment. Just find a combination of these 3 categories that best balances risk, earnings and management fees to your liking.

An IRA allows your money to grow tax free until your retirement years similar to a 401K but with so many more investment choices. By taking charge of your investments through personal research and management, you will have greater control over the growth of your money and hopefully have a much larger nest egg for which to enjoy your retirement years.

For more Financial, Job and Career advice as well as salary postings by company and position, visit SalaryFor.com

Article Source: http://EzineArticles.com/?expert=Dave_Caruso

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401k Rollover is a Financial Tool For These Tough Times

With the economy being in the predicament that it is presently with many people that have a 401k are interested in going through with a 401k rollover. However, before you decide to take the initial steps to commence in the 401k rollover process it helps to know what the rollover consists of.

With the unemployment rate on the rise, many people that have a 401k plan with their present employees are interested in what will happen to the funds that they have invested. Well, the good thing is many employers are allowing new employees to commence in what is known as a 401k rollover.

There are of course both good as well as bad points in commencing in a 401k rollover plan. One of the major benefits of rolling over your 401k is it does not matter how much money you have in order to engage in the rollover since normally there are no minimum investments that you have to make.

However, in some cases you will need a minimum amount of $3, 000 in order to engage in the 401k rollover plan. If the amount of money that you currently have in your 401k account is below $5, 000 it may be difficult for you to rollover the funds that you had in your previous account with your other employer.

Aside from the benefits of 401k rollover there are a few things that many people feel are discouraging about engaging in the process. One of the first things is people feel as though they are losing an immense amount of flexibility when they commence in rolling over their fund.

A lot of 401k plans also have high fees so when you are commencing in the rollover process you need to take heed of the other company's fees that they are offering. A rollover can help you save the money that you presently have saved up in your retirement fund; however before you engage in the process of rolling your money over from one employer to the next it helps to read the fine print of your agreement.

For more information or to get free help with a 401k rollover or IRA rollover call P&G Financial Group, Inc. at: 1-888-701-3222 or visit: http://www.pngfinancialgroup.com.

Article Source: http://EzineArticles.com/?expert=Jason_Pollington

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401k Rollover Has Its Good and Bad Points

A lot of people that find themselves out of a job are interested to know what happens to their 401k after they have lost their current employer, a 401k rollover of your current 401k will ensure that you keep the amount of money that you have already invested in your future. But, before you decide to engage in rolling over your funds you need to have an understanding of how the process works.

A 401k rollover allows you the opportunity to take the 401k that you have with your prior employer and use the funds that you have already invested into a brand new fund with a new employer. Basically, you are simply taking the money back that you were paying into your retirement plan that you had with your previous employer.

With engaging in the 401k rollover there are a few good and bad things about the whole ordeal. A big benefit of the rollover is that regardless of how much money you have in your 401k many companies will still allow you to take the funds that you had invested.

In some cases companies may retort that you need at least a minimum amount of $3, 000 in your account before they can engage in rolling over your funds. Some people find it difficult to rollover their current 401k's when they have an amount in the fund that is under $5, 000.

There are a few things that detour people away from the rollover process. One thing that changes when you engage in a 401k rollover is the flexibility that you previously had with your fund.

Some plans also have higher fees depending on where you roll them over to. Before commencing in a 401k rollover you need to take heed of the fees that the company that you are currently working for charges for their 401k plans. A 401k rollover can be a good thing for people that have suddenly lost their main source of income for no apparent reason at all. It is a good rule of thumb to read all the fine print on the 401k rollover agreement to assure that you are getting everything that you need.

For more information on 401k and IRA rollovers contact P&G Financial Group, Inc. at: 1-888-701-3222 or visit: http://www.pngfinancialgroup.com.

Article Source: http://EzineArticles.com/?expert=Jason_Pollington

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2010 Roth IRA Conversion Rule Changes

A big change is scheduled to hit the retirement planning landscape in 2010.

On the face of it, the 2010 Roth IRA conversion rule changes seem relatively minor.

But as you'll soon see, a minor change can have enormous consequences. In fact, as a result of the 2010 rule changes, anyone (regardless of income) will be able to...

1) Convert to a Roth, and/or
2) Effectively contribute to a Roth

Currently, IRS restrictions on personal income hamper the ability of high income earners to convert to, or contribute to, a Roth IRA. But that's all about to change...

So what's this monumental rule change just over the horizon?

It's the elimination of the IRS income restriction on Roth conversions.

AGI Limit For Roth IRA Conversions

Under current law, you're only eligible for a conversion if your adjustable gross income (AGI) is $100,000 or less. If you happen to earn more than $100,000 per year, you can NOT perform a conversion.

However, starting in 2010, the $100,000 AGI limit disappears.

That's right. It simply disappears!

Now, keep in mind that Congress can change its mind and reinstitute the $100,000 AGI limit at any time. But as of this moment, it hasn't given any indication it will do so.

As a result, anyone (regardless of income) can perform a Roth conversion starting in January 2010.

For instance, let's say you have a Traditional IRA, and you earn $152,000 per year. In 2009, you can NOT convert your Traditional IRA because your AGI exceeds $100,000. But in 2010, you CAN convert your Traditional IRA to a Roth because the AGI limit goes away!

But the implications of the 2010 rule change go far beyond your ability to perform a simple conversion. The rule change actually impacts your ability to contribute to a Roth if you earn above the current limits for making a contribution...

Current Roth IRA Income Restrictions

Under current law, the IRS restricts Roth IRA contribution eligibility to those who have income that falls within a predetermined range.

For instance, in the year 2009, the IRS limits for making a Roth IRA contribution are...

* $176,000 if you're married filing a joint tax return.
* $10,000 if you're married filing a separate tax return and lived with your spouse for any part of the tax year.
* $120,000 if you're single, head of household, or married filing separately and did not live with your spouse for any part of the tax year.

Under current law, if you earn more than the limit established for an individual with your tax filing status, you're not eligible to contribute a single penny to your Roth.

And while the limits change from year to year, the Roth IRA income limit restricting who can or cannot contribute will NOT disappear in 2010.

However, in effect, the Roth IRA income contribution limits do disappear...

To find out how, read more about the 2010 Roth IRA conversion rules by visiting Britt Gillette's website, Your Roth IRA, a site focused exclusively on helping people with self-directed Roth IRAs.

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