Over the past several years, I have suggested to healthcare clients who did not have a deductible or “rollover” IRA account and were participants in a retirement plan, that they make nondeductible IRA contributions.
While the IRA was not deductible on the personal return, the earnings continued to be tax-deferred.
We were also planning for 2010 when income limitations for a Roth Rollover are planned to be suspended.
Since 2010 is just around the corner, now is the time to begin planning for a Roth Rollover. Keep in mind that you will pay tax on the income earned within your IRA plan, but once a Roth, your account will grow tax-free.
If you didn’t establish a plan, there still may be time to participate now and in the coming years. Simply make a non-deductible contribution for a tax year, then switch the IRA to a Roth and pay tax only on the earnings.
Keep in mind, however, that if you have a regular IRA this strategy may not be as advantageous because the tax-free portion of Roth conversions is based on the ratio of nondeductible contributions to the total value of all regular IRA balances.
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