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Business Browser Date published: 10/11/2009 By Bill Freehling CHANGES are Income restrictions now prevent many people from taking advantage of a Roth IRA, whose distributions are generally tax-free. That will change in 2010, which will force high earners to decide whether to stick with a traditional IRA or convert to a Roth. There are also tax implications for 2010 conversions that might make it a good year to take action. Deciding whether to convert to a Roth is an individual decision that investors must calculate based on their age, expected tax rate and need for withdrawals Regis Keddie III, an investment executive for Davenport & Co. in Fredericksburg, told me that clients are starting to ask about Roth conversions. We agreed it would be timely for this column to focus on that subject. Denise Short, a tax manager with PBGH in Fredericksburg, helped me understand the changes. A Roth IRA is attractive to many investors because the distributions are tax-free, and penalty-free after the age of 59.5. Contributions are after-tax, meaning the money is taxed upfront rather than when tapped in retirement. People can also contribute to a Roth IRA after age 70.5, and there are no required distributions while the owner is alive. These characteristics make Roth IRAs attractive to people who expect to be in a higher tax bracket when they're older. Because there are no mandatory withdrawals, and because investors can contribute their entire lives, Roth IRAs are a good investment vehicle for those who may not need the retirement funds but wish to leave them to their heirs. Currently, people with modified adjusted annual gross income of more than $100,000 cannot convert into a Roth. But under a tax law signed by President Bush in 2005, the $100,000 limit will be waived starting in 2010, and anyone will be eligible to convert. Investors will have to pay taxes to convert a traditional IRA into a Roth IRA. Usually the resulting income taxes must be paid
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