Who knows stuff about IRAs?

[mrsklamc]

We want to max out our IRA contributions this year. Here's what I know, or think I know-

A Roth IRA is post-tax money, but you don't have to pay taxes on it when you withdraw the money later.

A traditional IRA is pre-tax but will be taxed when you take the money out. Right?

What is the maximum you can contribute to an IRA? Something like 2 or 3k per person, per year, right? Is that total, or can you contribute that amount to a Roth IRA and a traditional IRA?

AND Finally- I read something somewhere about 2010 having no cap for rolling traditional IRAs into Roth IRAs. At least, I think I did. Do we want to do that? Does that mean we NEVER pay taxes on that money? (I find that hard to believe.)

Thanks for answering if you know about this stuff!

 

[DaisiLou]

IRA Contribution Limits...

http://www.irs.gov/publications/p590/ch01.html#en_US_publink1000230381

General Limit
For 2009, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts:

$5,000 ($6,000 if you are age 50 or older), or

Your taxable compensation (defined earlier) for the year.

Roth IRA Conversions....

http://www.irs.gov/publications/p590/ch02.html#en_US_publink1000231029

 

[apnep]

A Roth IRA is post-tax money. but you don't have to pay taxes on it when you withdraw the money later.YES

A traditional IRA is pre-tax but will be taxed when you take the money out. Right?YES .

What is the maximum you can contribute to an IRA? Both you and your husband can contribute up to $5K EACH into separate funds. I started an IRA a few years ago, if I had to do over, I would have gone ROTH.

AND Finally- I read something somewhere about 2010 having no cap for rolling traditional IRAs into Roth IRAs. At least, I think I did. Do we want to do that? Does that mean we NEVER pay taxes on that money? (I find that hard to believe.)No, you will pay taxes when you convert from an IRA to a Roth for sure. I think this means that if you are going to rollover your IRA there is no limit on the amount ($5-6K annual limit), but yes, you'll pay the taxes.

 

[Nicolepa]

AND Finally- I read something somewhere about 2010 having no cap for rolling traditional IRAs into Roth IRAs. At least, I think I did. Do we want to do that? Does that mean we NEVER pay taxes on that money? (I find that hard to believe.)

Thanks for answering if you know about this stuff!

A roth IRA typically has an income cap if you make over x amount you cannot contribute to a Roth and can only contribute to a traditional IRA. For 2010 only that income cap is waived if you want to convert a 401K to an IRA. You will pay taxes now when you convert, but for this year only you can spread the tax bill of 2 or 3 years (I can't remember which.)

 

[Janet Hill]

AND Finally- I read something somewhere about 2010 having no cap for rolling traditional IRAs into Roth IRAs. At least, I think I did. Do we want to do that? Does that mean we NEVER pay taxes on that money? (I find that hard to believe.)

Thanks for answering if you know about this stuff!

IMO, I would never convert an IRA to a Roth. You're marginal tax rate now is most likely higher than your marginal rate will be when you retire (unless of course there are some major tax hikes). The biggest downside is, what's to say the gov won't change the rules in the future. In order to raise more revenue, they could easily change the rules and start taxing a portion or all of a Roth distribution. Afterall, the reason they're allowing for this rollover option now is to raise revenue.

 

[santa's surpriz]

IMO, I would never convert an IRA to a Roth. You're marginal tax rate now is most likely higher than your marginal rate will be when you retire (unless of course there are some major tax hikes). The biggest downside is, what's to say the gov won't change the rules in the future. In order to raise more revenue, they could easily change the rules and start taxing a portion or all of a Roth distribution. Afterall, the reason they're allowing for this rollover option now is to raise revenue.

That is exactly why there are programs to convert Traditional IRAs to Roths and why Roths are such a big topic right now. The thought process used to be that when you distribute you will be in a lower tax bracket/rate, that has all changed bc there is a really good chance of huge tax hikes, the bracket/rate you are in now maybe much lower than the new tax brackets/rate in the future.