Roth IRA Questions

Can I convert my traditional IRA to a Roth IRA?

There are only two disqualifiers for this type of conversion: 1) if you’re married, filing separately, or 2) if your modified adjusted gross income (MAGI) in the year of the conversion is $100,000 or more. This limit is the same for both single filers and married couples who file jointly. Keep in mind that if you convert to a Roth IRA, you’ll have to pay income taxes on your traditional IRA earnings and on any deductible contributions you’ve made to that IRA.

Sometimes a better question than “Can I convert?” is “Should I convert?” For many, the Roth IRA’s tax-free earning potential is well worth the conversion, but it’s a good idea to check with a tax adviser before you make your decision.

Do I have to start withdrawing money from a Roth IRA at any certain age?

No. Unlike traditional IRAs, there’s nothing that requires you to start withdrawals from a Roth IRA when you reach age 70½. And as long as you’re still earning compensation, you can keep putting money into a Roth IRA indefinitely. This flexibility lets you build your savings for future retirement years or even a gift to your loved ones — a gift that’s free of income tax for qualified distributions.

Can I have both a traditional and a Roth IRA?

Yes, you can. But remember that you can only contribute up to $4,000 per year to any combination of traditional and Roth IRAs that you have. You can’t contribute $4,000 to each. On the other hand, your annual $2,000 contributions to a Coverdell ESA are entirely separate from the $4,000 yearly contribution limit for traditional and Roth IRAs.

Will my contributions to a traditional IRA be tax-deductible?

There are three factors that determine eligibility for tax-deductible contributions to a traditional IRA: income, participation in a retirement plan, and marital status. Check your eligibility below. Married? Your contributions are fully deductible if:

• Neither you nor your spouse have an employer retirement plan (regardless of income); or
• You have an employer retirement plan, but your joint tax return shows income of $85,000 or less; or
• Only your spouse has an employer retirement plan, and your joint tax return shows income of $150,000 or less.

Single? Your contributions are fully deductible if:

• You don’t have an employer retirement plan (regardless of income); or
• You have an employer retirement plan, but your income is $60,000 or less.

Note: If your income exceeds the above limits, you may be able to make deductible contributions of less than the maximum.

How do I save money by rolling my pension plan payout into an IRA?

By cashing out your pension plan, you risk losing up to 50 cents on the dollar. This is because distributions from your plan payout are taxable, plus they’re generally subject to a 10% penalty if you’re under age 59½.

You can save money with a direct rollover to a traditional IRA at the credit union. A direct rollover differs from other rollovers in that the plan administrator sends the funds to the credit union on behalf of your IRA, not to you. As a result, you’re not subject to taxes and penalties — which means all of your money keeps compounding for your future, uninterrupted, in a tax-advantaged account.