2010 Roth Regulations Encourage IRA Account Frontloading

Financial Professionals! The new regulations surrounding Roth IRA 2010 conversions offer a great savings opportunity for your clients - and a sales opportunity for you. Thanks to the Tax Increase Prevention and Reconciliation Act (TIPRA), the $70 billion tax-cut bill signed into law in 2005, the Roth Individual Retirement Account (IRA) could become one of the most sought after retirement plans.

TIPRA included a provision that will soon allow higher-income individuals previously excluded by MAGI limits to open a Roth IRA. After January 1, 2010, anyone can convert money already invested in a traditional IRA into a Roth IRA – and there will be no income limits. In the past, the law limited conversions to those taxpayers with adjusted gross incomes of $100,000 or less, whether married or single.

The TIPRA provision will make these conversions even easier. Clients converting their regular IRA to a Roth in 2010 won't have to pay any taxes on the conversion in that year. They will be able to pay half in 2011 and half in 2012.

But don’t let the date 2010 throw anyone off. Interested IRA owners can begin preparing now by building a healthy conversion balance. The potential offered for tax-free compounded savings is huge. The client can seize the day by making maximum contributions to their traditional IRAs, either 100% of earned income or the annual limit, whichever is less. For 2007, the annual limit is set at $4,000, with a catch-up contribution of $1,000 for those age 50 or over. In 2008, this limit will increase to $5,000, with a catch-up again of $1,000.

While this 2010 conversion opportunity could bring about a significant shift in the type of investor who views this IRA as appealing, a Roth is not for everyone. Every taxpayer’s situation is different, and it is important to weigh the advantages of a tax deduction now over tax-free withdrawals later.

For help deciding if a Roth IRA is the right choice for your client, Principal Trust offers our IRA comparison calculator and a Roth IRA Improves web seminar. Visit our website for more information.