Roth IRAs are a great way to save for a tax-free retirement. When you reach retirement age and take money out of your Roth IRA account, you don’t pay income taxes on it. This provides an additional benefit over a traditional IRA because the Roth earnings are tax-free as well.
The problem with a Roth IRA is that higher income individuals and people filing separately. In 2010 that will change. The law preventing Married Filing Separate filers from contributing to a Roth IRA will expire on January 1, 2010.
For wealthy individuals there is a trick to it. The income limitations for direct Roth IRA contributions will still be in place, making it so that joint filers with adjust gross income over $176,000 and single filers with AGI over $120,000 cannot make contributions directly to a Roth IRA. However, the rule making it so that people with AGI of $100,000 or more can’t role a traditional IRA over to a Roth will be gone as of January 1, 2010.
The result is that you will be able to make non-deductible contributions to a traditional IRA and then roll them over into a Roth IRA no matter what your income level is. You will only pay taxes on any earnings between your original contribution and the rollover.
If your AGI will be over the limit for 2009, you can still get a headstart this year by opening a traditional IRA now and making non-deductible contributions for 2009.