Congress Enacts New Laws Making Iras Better Than Ever
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Congress Enacts New Laws Enhancing IRAsIntroduction
Did you know about the "non-deductible" IRA? Unlike the ROTH IRA, this type often serves as the only option for many investors due to specific restrictions on other IRAs.
In these scenarios, the IRS permits contributions to a traditional IRA without offering a tax deduction. While you enjoy tax-deferred growth, your earnings, such as interest and capital gains, will be taxed during retirement, but not your initial contributions.
Key Updates from Congress
Recently, Congress passed a law allowing people to convert their traditional IRAs?"whether deductible or not?"into ROTH IRAs starting in 2010. This move is especially beneficial for high-income earners who couldn't fully fund a ROTH IRA due to income limits.
With a ROTH IRA, there's no initial tax deduction, but you don’t pay taxes on qualified withdrawals. This makes them particularly advantageous for younger individuals.
Challenges and Solutions
Some workers with access to retirement plans like 401(k)s might face restrictions on deductible IRA contributions based on their income levels. For example, singles earning $52,000?"$62,000 and joint filers making $83,000?"$93,000 may have limitations.
In such cases, a non-deductible IRA is a viable option. Thanks to new legislation, you can convert these IRAs into ROTH IRAs in 2010, regardless of your income. Even better, you’ll be allowed to pay any resulting taxes over two years (2011 and 2012), effectively offering a tax-free "loan" in 2010.
Benefits of Conversion
Once converted, a ROTH IRA allows tax-free withdrawals during retirement?"a significant advantage. If high income bars you from contributing directly to a ROTH IRA, you can still participate by funding a traditional or non-deductible IRA and converting it later.
Contribution Limits and Options
In 2007, those under 50 could contribute up to $4,000, while those 50 or older could contribute up to $5,000. Importantly, if you haven't maxed out your 2006 IRA contributions, you can still do so until April 17, or later if you file for an extension.
Plan Ahead
It's wise to contribute as much as possible to these accounts and plan for a ROTH conversion in 2010. Moreover, even SEP IRAs and SIMPLE IRAs can be converted to ROTH IRAs, allowing for broader tax-free retirement savings.
Conclusion
The more you save and the earlier you start, the better prepared you'll be for retirement. Take advantage of these enhanced IRAs to secure your financial future.
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