The New Roth Revolution


New Roth Opportunities to Save for Retirement –Available to Just About Everyone Now or in the Near Future

Since its inception in 1998, the Roth IRA has been an attractive retirement savings option. However, eligibility restrictions based on modified adjusted gross income (“income”) limited the availability of this savings vehicle. Now, thanks to recent legislation, the Roth IRA is available to more individuals. Read on to see if one of the three following Roth options might work for you.

Introduced as an alternative to the traditional IRA, the Roth IRA offers some distinct advantages, chief among them qualified tax-free distributions*, no required minimum distributions (RMDs) for individuals older than 70 1/2 years and the ability to contribute past age 70 1/2 for individuals with earned income. (Contributions, which are subject to the same limits as traditional IRAs, are not tax- deductible.) Recent increases to income eligibility limits have allowed single individuals with incomes of less than $101,000 and those married/filing jointly with incomes of less than $159,000 to make the full contribution to a Roth IRA. (Partial contributions are allowed within certain income ranges.)

Not Eligible For a Roth IRA? You might consider…The Roth 401(k)

If you’ve ever wished that your 401(k) savings benefited from the same tax treatment as the Roth IRA, your time may have come. First, see if the Roth 401(k) feature has been added to your company’s retirement savings plan. Available to all plan participants regardless of income, the Roth 401(k) allows higher annual contribution limits than a Roth IRA ($15,500 for 2008/$20,500 for age 50 or older) and qualified tax-free distributions.* You can contribute to either the Roth 401(k) or the pre-tax 401(k) or both. However, the total contri- bution amount to these plans in 2008 may not exceed $15,500 (or $20,500 if you are age 50 or older).

When deciding between a Roth 401(k) and a pre-tax 401(k), you should seriously consider what tax bracket you will most likely be in during retirement. Typically, a smilier or higher tax bracket tends to favor the Roth 401(k).

Your Employer Doesn’t Offer a Roth 401(K)?

You might want to plan for…the 2010 Roth Conversion Opportunity

If you’ve been unable to take advantage of Roth IRA bene- fits because of your income level, 2010 could be your year. Beginning in 2010, virtually anyone will be able to convert a traditional IRA to a Roth IRA since the $100,000 income limit will be eliminated. But the time to start taking action is now. Here’s how.


With no income eligibility limits for after-tax contributions to traditional IRAs, even high-income investors can make such contributions. Anyone with earned income can contribute, on an after-tax basis, up to $5,000 in 2008 (may be adjusted for inflation in 2009 and later) with an additional annual $1,000 in catch-up contributions if age 50 or older.You can then convert your traditional IRA in to a Roth IRA in 2010.


Even though you have to pay income tax on the taxable portion of the traditional IRA account being converted to a Roth IRA in 2010, you can stretch your tax liability over the next two tax years: 2011 and 2012.


Although the income limits for contributing to a Roth IRA are scheduled to continue, you should be able to make a traditional IRA contribution and then convert it to a Roth IRA in the same year.

Benefits of Roth Conversions

  • A tax-free retirement nest egg that can keep growing for life.
  • An effective strategy for highly compensated employees.
  • No RMDs for the account holder.
  • Generally tax-free RMDs for a non-spouse beneficiary that can be stretched over his or her lifetime.


If you are able to participate in your employer’s qualified plan, consider making the maximum annual after-tax contributions starting immediately. In 2010, if you are retiring or leaving your employer, or you are able to take an in-service, non-hardship withdrawal, you will be allowed to roll the plan distribution over directly in to a Roth IRA.

Since a conversion to a Roth IRA involves a distribution from the converting account, you should be aware of the pro-rata rule. If you have a traditional IRA, SEP-IRA, SIMPLE IRA or rollover IRA that contains both pre-tax and after-tax funds, a per- centage of every dollar you convert to a Roth IRA will contain a proportional percentage of taxable and tax-free funds relative to the pre-tax and after-tax value of all your non-Roth IRAs. Consult your tax advisor.

For example, you have $500,000 in total IRA assets, which include:

– $50,000 (10 percent) in after-tax assets
– $450,000 (90 percent) in pre-tax (taxable) assets

If you convert $100,000 to a Roth IRA, the distribution would be taxable as follows:

– $10,000 (10 percent) tax-free

– $90,000 (90 percent) taxable