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Contributions to Roth IRAs

In a conversion, an account holder rolls over funds from a traditional IRA into a Roth IRA. Until 2010, only individuals with an AGI of $100,000 or less are eligible to make such conversions; however, no age restrictions apply. Unlike with ordinary rollovers, amounts converted to Roth IRAs are considered taxable income in the year they are made.(1)

Beginning in 2010, individuals with an AGI greater than $100,000 will be able to convert their traditional IRAs to Roth IRAs. Any amounts converted in 2010 will be split evenly between 2010 and 2011 for purposes of calculating taxable income.

Nondeductible Contributions

An individual may contribute to a Roth IRA even after reaching age 70�, which is not the case for traditional IRAs. However, to make such a contribution, which is not tax-deferred, an account holder must have earned income or be married to someone with earned income. Furthermore, potential contributors are subject to an income test, even if they are not covered by an employment-based plan. For unmarried taxpayers, the maximum allowable contribution declines from $3,000 to zero between $95,000 and $110,000 of AGI. For married taxpayers who file joint returns, the corresponding phaseout range is from $150,000 to $160,000 of AGI.(2) Beginning in 2010, taxpayers at higher income levels will be able to make nondeductible contributions to traditional IRAs, then roll them over into Roth IRAs, notwithstanding the income limits on direct contributions to Roth IRAs.

Beginning in 2006, EGTRRA allows Roth IRAs to accept rollovers from the analogous "Roth 401(k)" accounts.

1. People making conversions in 1998 were permitted to spread the resulting taxable income over four years.
2. For married taxpayers filing separate returns, eligibility phases out over the first $10,000 of AGI.

Source: Congressional Budget Office

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