New Tax Legislation may Cause Possible Billions in to Roth IRAs

Would you mind More tax-free savings at retirement?

The new law will allow those with annual adjusted gross incomes of $100,000 or more to convert their traditional individual retirement accounts into Roth IRAs, which allow tax-free withdrawals after age 59 1/2 and five years after the initial contribution. Those who own traditional IRAs must pay income tax on distributions at retirement.

The elimination of the income limit for conversions doesn't begin in until 2010. If you convert in 2010 you don't have to pay the tax right away . One strategy may be to split what's owed over the next two years. If you convert after that, then you have one year to pay the bill.

A Roth IRA has several advantages. Because withdrawals are tax-free, owners don't have to pay taxes on the capital gains earned in the account. There is no age limit for contributing to a Roth IRA and no required distributions. And those who inherit a Roth IRA don't have to pay income taxes on their withdrawals, a great estate planning tool because the IRA owner essentially prepays the taxes owed.