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With the end of 2010 approaching, it’s not too late to take care of the items on your to-do list related to your Individual Retirement Account (IRA). Before the new year—the official expiration date for this offer—take a minute to consider whether a traditional to Roth IRA conversion is right for you.
Convert Your Traditional IRA To A Roth IRA
With taxes on investments expected to increase in coming years, it is not a bad idea to consider converting your traditional tax-deferred IRA to a Roth IRA, which grows tax-free. You’ll have to pay income tax on the growth when you make with the conversion, and since you’ve already paid taxes on this amount, you can withdraw the money tax-free after you turn 59.5 years old.
This Year Is The Only Year To Split The Conversion Tax
This year was the first that all taxpayers were allowed to make this conversion (before 2010, only those that earned less than $100,000 in adjusted gross income were able to convert) and only in 2010 will people be able to split the income tax payments on the conversion between their 2011 and 2012 returns. You can reverse the conversion as late as October 15, 2011.
Understand Your Maximum Contributions
For both a traditional IRA and Roth IRA, the maximum contribution you can make is $5,000 in 2010 ($6,000 if you are 50 or older). The maximum contribution you can make for your 401(k) is $16,500.
What To Know For Next Year
Maximum contributions for IRAs and 401(k)s remain the same in 2011. The maximum income levels for the Retirement Savings Contributions Credit—also known as the Savers Credit—have increased: Single and married individuals filing separately who make up to $28,250 (previously $27,750); married couples filing jointly who make up to $56,500 (from $55,500); and heads of household who make up to $52,375 (previously $41,625) qualify for the credit. If you think you might be eligible for the credit, learn more about eligibility requirements HERE.
Tell us in the comments: Have you converted your IRA account? Do you plan to? Why or why not?
