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.

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