retirement

Roth IRA conversion 'speed bump' is silly

Don TaylorQuestionDear Dr. Don,
I want to convert our traditional IRAs into a Roth IRA since the income limits have been removed this year. If I make a nondeductible contribution to my traditional IRA for this tax year before I make a Roth IRA conversion, will the contribution be considered a contribution to the traditional IRA or the Roth IRA?

I ask because we do not qualify for Roth contributions because of income limits.
-- Keith Converts

AnswerDear Keith,
You're smart to recognize that while income limits were removed on Roth IRA conversions in tax year 2010, income limitations remain on contributions to a Roth IRA.

It makes no sense to me that Congress chose to keep this Roth conversion speed bump in place. Taxpayers can fund traditional IRAs with deductible or nondeductible contributions and then convert.

The conversion itself isn't considered a contribution. The contribution took place in funding the traditional IRA account. Instead, the amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution.

It sounds like you've already decided to convert your traditional IRAs. It's not the right decision for everyone. Bankrate's "2010 Retirement Guide" provides a lot of helpful information on IRAs and Roth IRA conversions.

Also, check out Bankrate's "Convert IRA to Roth calculator" to estimate how the conversion could benefit your retirement nest egg.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

News alert Create a news alert for "retirement"

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Blog

Jennie Phipps

Social Security disability tactics

If you must claim Social Security Disability Insurance, or SSDI, here are some things you need to know.  ... Read more

advertisement
Partner Center
advertisement

Connect with us