I just wanted to make sure that the people on this board that are above the "cut" for ROTH IRA contributions know that they can actually create a traditional IRA account and they will be allowed to do a conversion to ROTH when the income limits are relaxed in 2010 and 2011.

I would like to remind everyone that the laws could be changed in the meantime.

A conversion is taxed as ordinary income, I believe. (Is that right?) Is it advisable for someone who is in the 28-35% tax bracket to do a Roth conversion?

Another caveat of this law is you cannot convert just the "backdoor" amount. If you have a 50K IRA (previously qualified or 401K rollover) and contribute 5K this year, paying tax on 5K only converts $500 of the non-deductible amount.

And it's always worth it to convert a non-deductible IRA regardless of tax bracket because you already paid tax on the contribution amount. You would only have to pay tax on the growth.

unless you have a short time horizon or going to be in a lower tax bracket upon withdrawal.

Speaking of Roth. How many of you are fearful like me that the government (when we hit retirement) is going to see all these people not paying federal taxes on their Roth plans and change the laws?

I'll chime in to remind people that you may want to check at work to see if you have what is called a Roth 401k option (it was new at my company in Jan. 2007). I can divert part of my 401k monies (up to the limit of $15,500) into what is called a Roth 401k (I don't qualify for Roth IRA) and the contributions are after tax and distributions will be tax free in retirement.

Here is a good article on the topic http://money.cnn.com/2008/01/07/pf/expe ... 2008011009 and after reading this article I'm thinking of increasing my Roth 401k monies and decreasing my regular 401k.

I don't see how they could change laws to make us pay income tax TWICE on the same income (of course we may be entering a democratic regime so if we CAN get over-taxed, they will find a way!). I could definitely see them changing the laws in the near future not allowing NEW Roth IRA's to be opened. I don't think they'll mess with the existing accounts though.

I tend to agree here. I wonder how much money is really in all the Roth IRAs in the US. I know a lot of people do not take advantage of them.

i have to say - this whole thing confuses the heck out of me. The tax part of it, i mean.

I'm in the 28% tax bracket, but i can't contribute to a roth. I have a traditional IRA (it was a rolled over 401k). Should I transfer it to a roth? I don't know. Am I going to be richer in retirement than I am now? Probably? But - then again, one more raise (which I should be getting this month) and I'm now in the next tax bracket. The future is so uncertain, who knows what could happen?

Should I transfer my IRA to a roth? I do have a roth - but its a measly 6k, that was all i was able to contribute before I became unable to contribute to it anymore. Should i contribute to my traditional IRA? I'm not right now. Its so darn confusing.

Well the topic here is backdoor Roth accounts via conversion of a non-deductible IRA. So the key isn't short time horizon or lower tax bracket but how much taxable gains you have now. If you opened an account 2 years ago and your gains 10% at most -- paying 28% now on just that small gain is not a big deal in order to use the 2009-2010 conversion (which may not come around again).




There are all sorts of ways to add backdoor taxes to a Roth. Say national sales tax or means testing for social security. It's not a tax! Just a reduction of benefits!

As MossySF has already alluded, it's not the contributions -- which have already been taxed -- that's the concern, it's the gains on those contributions. The current Roth structure provides tax-free treatment of those gains, which I'd argue is the primary drawing card to the Roth.

That said, I don't put it past some of the political factions in the US to eventually come up with some type of means testing to qualify for that tax-free treatment. Make too much money -- that is, you're one of the evil "rich" who isn't paying his "fair share" (whatever that is) -- and you lose the benefit. After all, it's all about being "fair", right?

Hopefully I'm correctly catching a big whiff of sarcasm by your comment. It makes me sick that that people in this country DO NOT have to pay a FAIR share of their income. The rich pay a higher percentage, just because they have decided to go out there make a darn good living, and how are they rewarded...with a higher tax bracket. It makes me sick how people are actually penalized for having the ambition to go out and make more money....I wonder why we have so much means-testing and welfare....everyone deserves EVERYTHING now. So why would some people go out and work harder when all they have to do is fill out an application and have a check mailed to them? I'm a social worker and I've dealt with many many people who are actually afraid, yes AFRAID to earn more money because they won't be eligible for their disability check or their food stamps.....I see it everyday. It is one of the things that is so backasswards in this country that will end up bringing us down. Multiple generations of "entitled" people is dangerous. No wonder people are mesmerized by the socialistic presidential candidates we are being fed.

Well see, when they are poor enough for food stamps, they can use the money they do get (a lot of it under-the-counter money probably) to buy beer, cigarettes, cable television, or a nicer car than they should have. If they don't get food stamps, they have to pay for food, God forbid.

Sarcasm correctly detected!!