Employee Benefit Plan Review
“Roth On! Window Opens in 2010 for Individuals Historically Closed Out of Roth IRA Conversions and Rollovers”
Since their appearance in the 1990s, Roth IRAs have been available to many Americans as a tax effective and convenient way to save for retirement while serving a variety of other tax purposes. Although open to most Americans, Roth IRAs have been off limits to those individuals with certain levels of "modified adjusted gross income." For example, an individual with "modified adjusted gross income" of $101,000 or more in 2008 (or $159,000 if filing jointly) will be unable to make a full contribution to a Roth IRA in 2009, and an individual with "modified adjusted gross income" of $116,000 or more (or $169,000 if filing jointly) in 2008 would generally be precluded from making any contribution to a Roth IRA in 2009. These same limits have historically prevented individuals with high "modified adjusted gross income" from rolling over eligible distributable balances to Roth IRAs from tax qualified plans or "converting" amounts to a Roth IRA from a Traditional IRA.
That changes beginning in 2010, under legislation signed into law by President George W. Bush (the "Tax Increase Prevention and Reconciliation Act"). Under that legislation, individuals who have traditionally been "boxed out" from "rolling over" assets to a Roth IRA, or "converting" assets to a Roth IRA by reason of these "modified adjusted gross income" limitations will generally be permitted to do so. This presents a significant opportunity for individuals to consider whether "converting" assets held in a Traditional IRA to a Roth IRA, or, if structured properly, rolling over distributable amounts from a tax-qualified plan to a Roth IRA might be right for them.