Roth IRA Questions
Can I convert my traditional IRA to a
Roth IRA?
There are only two disqualifiers for this
type of conversion: 1) if you’re married,
filing separately, or 2) if your modified
adjusted gross income (MAGI) in the year of
the conversion is $100,000 or more. This
limit is the same for both single filers and
married couples who file jointly. Keep in
mind that if you convert to a Roth IRA,
you’ll have to pay income taxes on your
traditional IRA earnings and on any
deductible contributions you’ve made to that
IRA.
Sometimes a better question than “Can I
convert?” is “Should I convert?” For many,
the Roth IRA’s tax-free earning potential is
well worth the conversion, but it’s a good
idea to check with a tax adviser before you
make your decision.
Do I have to start withdrawing money from
a Roth IRA at any certain age?
No. Unlike traditional IRAs, there’s nothing
that requires you to start withdrawals from
a Roth IRA when you reach age 70˝. And as
long as you’re still earning compensation,
you can keep putting money into a Roth IRA
indefinitely. This flexibility lets you
build your savings for future retirement
years or even a gift to your loved ones — a
gift that’s free of income tax for qualified
distributions.
Can I have both a traditional and a
Roth IRA?
Yes, you can. But remember that you can only
contribute up to $4,000 per year to any
combination of traditional and Roth IRAs
that you have. You can’t contribute $4,000
to each. On the other hand, your annual
$2,000 contributions to a Coverdell ESA are
entirely separate from the $4,000 yearly
contribution limit for traditional and Roth
IRAs.
Will my contributions to a traditional
IRA be tax-deductible?
There are three factors that determine
eligibility for tax-deductible contributions
to a traditional IRA: income, participation
in a retirement plan, and marital status.
Check your eligibility below. Married? Your contributions are fully
deductible if:
- Neither you nor your spouse have an
employer retirement plan (regardless of
income); or
- You have an employer retirement
plan, but your joint tax return shows
income of $85,000 or less; or
- Only your spouse has an employer
retirement plan, and your joint tax
return shows income of $150,000 or less.
Single? Your contributions are fully
deductible if:
- You don’t have an employer
retirement plan (regardless of income);
or
- You have an employer retirement
plan, but your income is $60,000 or
less.
Note: If your income exceeds the
above limits, you may be able to make
deductible contributions of less than the
maximum.
How do I save money by rolling my
pension plan payout into an IRA?
By cashing out your pension plan, you risk
losing up to 50 cents on the dollar. This is
because distributions from your plan payout
are taxable, plus they’re generally subject
to a 10% penalty if you’re under age 59˝.
You can save money with a direct rollover
to a traditional IRA at the credit union. A
direct rollover differs from other rollovers
in that the plan administrator sends the
funds to the credit union on behalf of your
IRA, not to you. As a result, you’re not
subject to taxes and penalties — which means
all of your money keeps compounding for your
future, uninterrupted, in a tax-advantaged
account.
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