Roth 101: A Refresher Course

Now that the Roth IRA has been around for a few years, many CPAs and accounting professionals have extolled the value of the plan to their clients, but for some reason, many taxpayers aren't taking advantage of this vehicle.

To refresh your knowledge of the Roth IRA, here is a basic explanation of its benefits and parameters.

The Roth IRA is available in a $2,000 contribution or Roth conversion, and the latter plan often brings about the most savings. However, to qualify for a Roth IRA conversion, income cannot exceed $100,000, and the rule applies whether single or married.

When you convert to a Roth IRA from a traditional IRA, tax only is paid on the amount converted. If the client has non-IRA money to pay the tax with, taxpayers are encouraged to convert the maximum amount. If the conversion tax is not paid right away, the long-term liability will be greater because any growth in the regular IRA will be taxed and withdrawals from that account must begin after the Required Beginning Date (RBD) - April 1 of the year after the taxpayer turns 70-1/2.

To qualify for the annual $2,000 per person Roth contribution ($4,000 if married, filing jointly), the taxpayer must have at least that much in earned income, and income cannot exceed the phase-out range - $95,000 to $110,000 of income for singles, and $150,000 to $160,000 if married, filing jointly.

Roth contributions are not tax deductible, but once the account is held for five years and the age of 59 1/2 is reached, all withdrawals are tax free forever for the taxpayer and any beneficiaries.

To find out if a Roth is right for you or your clients, check out the Roth calculators at AccountingWEB.


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