non-deductible contributions to a Traditional IRA

for example) to contribute to a Traditional IRA and to then convert to> a Roth in 2010. In 2010 there are no income limits on such> conversions.

It depends - does the potential depositor to the IRA already have a deducted IRA balance? If so, the Roth conversion is prorated. e.g. I have $18,000 balance in my IRA, and no basis. This year I cannot take any deduction, so I do $2000 in post tax money. In 2010, I cannot just convert the $2000 tax free, any conversion is 90% taxable. This may or may not be an issue, just a thing to be aware of.

As far as the congress question, who knows? Can anyone? Joe

The ideal case is someone with $0 in IRA assets now, who contributes $10k ($5k self, $5k spouse) for 2008-10, all nondeductible, and then coverts it all. The contributions establish "IRA basis" so the conversion would be taxable only to the extent of any income earned. And if that's a concern for whatever reason, you could leave it in money market, earning spit until then.

After that you'd have a pool of (ostensibly) tax-free dollars to invest. It wouldn't matter what you invested in really; tax-free beats taxable, assuming you don't need the cash for something else and the money will sit awhile.

As for whether the rule could change - while it's possible I haven't heard of anything in committee that would mess with it (Roth limits are a bit obscure, as a tax issue). Over-$250k households do seem to be in the gunsights though, even if the outcome is potentially better if given a tax provision like this. It should raise some extra tax revenue in

2010, but at the possible cost of less down the line, with the biggest benefit falling on higher-net-worth taxpayers. I suspect though that many who convert would have been better off leaving the dollars as pre-tax money; on the numbers, most IRAs aren't going to be big enough to be taxed much during retirement (if at all).

-Tad

>>

This makes the decision dependent on the size of the deductible IRA balance, too. To get the full benefit of the rolling over non-deductible contributions in 2010, you'll have to rollover your entire Traditional IRA balance.

The dominant factor in deciding whether a Roth conversion is beneficial is typically the difference between your current marginal tax rate and your marginal tax rate at withdrawal. But if your deductible IRA savings are large (say from a big 401(k) rollover, or whatever), then a conversion in 2010 could dramatically alter your tax landscape in retirement. Now it's not just your marginal rate in retirement that's important (which is already impossible to predict), but your overall effective tax rate - probably hard to even get reasonably close.

For myself, I've elected to put funds that might have gone into a non-deductible IRA into a taxable account instead.

-Will

william dot trice at ngc dot com

(at

for example) to contribute to a Traditional IRA and to then convert to> a Roth in 2010. In 2010 there are no income limits on such> conversions.

It's a good idea, and I think that if your 401(k) doesn't have matching funds, you should max out your IRA first. Regular and Roth IRAs give greater investing flexibility.

Don't buy bonds in a company that's close to bankruptcy.

I think you're right on that. So don't convert too much getting yourself a higher tax rate or AMT.

-- Ron