Conversion to Roth IRA

Partly: In order to put money into any IRA, you must have Earned income, so the "no income limits" is only partly correct. To put in $5,000, you must have $5,000 in earned income or a spouse who qualifies you for a spousal contribution.

On the high end of income, you statement is correct as to income, but you may (for the years 2010 and subsequent as the law stands now) immediately convert to a ROTH , not having to wait a year as your post indicates. How long we have this in place is anyones guess, but hopefully Congress will be too busy cranking out other taxes to notice this.

This is indeed a great opportunity, and has been discussed in many threads on this newsgroup.

Tyler

This is only true if the new IRA account is your only IRA account. If you have any other existing IRA accounts that were funded with deductible contributions, then the tax you owe could be significant. See Form 8606.

All I have is a Rollover IRA. Would the taxes affect me in that case? To avoid that, can I roll over the Rollover IRA into my current 401 (k)?

Anoop

In general, does it matter how early or how late one converts in 2010? Chuck

Per IRS rules, ALL your traditional IRA accounts are lumped together, whether taxable (rollover IRA) or after tax. Any conversion will be prorated between the deductible and nondeductible portions (see form

8606), so may result in a substantial tax bill. Rolling the "rollover IRA" into your current employer's 401k plan may be possible - if permitted by that plan - leaving you with only after-tax funds in your traditional IRA.

immediately

Only as to the determination of value to include as taxable income.

Slighly OT but of course there are two sides of a conversion: 1) the disribution from the traditional IRA, and 2) the funding of the Roth IRA.

The date (and year) of distribution is determined by the first date, and the start of the five-year Roth Conversion clock, for those under age 59 1/2, starts on Jan 1 of the year the funding of the Roth occurs.