Roth Rollover Rules

The Roth IRA (Individual Retirement Accounts) is one of the many ways that a person can save his earnings for his retirement. A person, regardless of age, should have a taxable compensation like salaries, wages, fees, and bonuses, to be able to qualify to contribute to a Roth IRA. However, account holders must meet certain income requirements.

In 2009, a single person is required to have a modified adjusted gross income (AGI) of up to US$105,000 to make full contribution. On the other hand, married couples filing jointly should have a modified AGI of up to US$166,000 to make full contribution in 2009. In 2010, new Roth IRA rules on income limits will apply to adjust for inflation.

In 2009, the contribution limit to Roth IRA account holders was US$5,000. In the same year, the contribution limit with catch-up was US$6,000. Catch-up contributions apply only to those workers age 50 and over by the end of the calendar year. In 2010, contribution limit will be indexed to inflation.

There are several ways for a person to transfer traditional or other IRA retirement plans into a Roth IRA. These include account-to account transfer, same-trustee, and rollover. A rollover takes a distribution from a traditional IRA and moves it to a Roth IRA within 60 days of receiving the distribution. If transfer fails, the IRS may impose early withdrawal penalties to the person, usually a 10% additional tax.

The IRS has also set up specific Roth rollover rules. In 2008, Roth IRA rollover tax laws allowed a qualified person to roll money directly into a Roth IRA from a 401k, 403b, 457, or other tax-qualified retirement plans. Before the rules changed, an individual had to first rollover a 401k IRA into a traditional IRA before he could convert the retirement plan into a Roth IRA.

Starting in 2010, a new Roth IRA rollover rules will take effect. The existing income limits for converting a traditional IRA to a Roth IRA will no longer apply. This means that anyone can now convert other tax-qualified retirement plans into a Roth IRA regardless of income. When a conversion is made on tax-deductible contributions, the person should have to pay taxes on the entire balance when he decides to convert a traditional IRA into a Roth IRA. If the conversion is made in 2010, the person can spread the tax bill over two years, from 2011 to 2012.

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