Roth IRA
A Roth IRA is a retirement savings plan for investors who are looking for tax-free growth potential. Once you reach age 59½, you may qualify for tax-free withdrawals of both contributions and any accumulated earnings. In addition, you are never required to take distributions, making a Roth IRA an effective option for both retirement and estate planning purposes.
Why a Roth IRA Could Make Sense for You
- Earnings may be withdrawn free from federal taxes under certain circumstances.
- There are no minimum distribution requirements.
- You may potentially reduce or eliminate the taxes your beneficiaries will have to pay after inheriting.
- You may realize tax savings if you think your tax bracket in retirement will be higher than your current rate.
- Up to $10,000 in earnings may be withdrawn tax-free if used for a qualified first-time home purchase.
 New Rules in 2010
Beginning in 2010, two important changes are scheduled to take effect for converting an IRA (traditional, SEP or SIMPLE) or other eligible qualified retirement plan to a Roth IRA. First, the income limit for Roth IRA conversions and the prohibition against conversions for tax filing status of married filing jointly will no longer be in effect, allowing more people to take advantage of a Roth IRA (however, income limits for Roth IRA contributions will remain in effect). Second, conversions to a Roth IRA that occur in 2010 will allow the taxpayer to spread the taxable income from the conversion ratably over a two-year period in tax years 2011 and 2012.
The deadline for recharacterizing a 2010 Roth conversion is October 15, 2011. If a recharacterization is not done by that date, the taxpayer will be locked into any tax liability from the conversion, including reporting income ratably over 2011 and 2012 if applicable.
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