Retirement & Financial Planning Report

Many people fear that income tax rates will rise in the future. If so, contributing to a Roth IRA now will prove to be a wise decision. You get no upfront deduction but all withdrawals are tax-free, after you’ve had a Roth IRA for five years, if you are at least age 59-1/2.

* For 2011, you can make IRA contributions until April 17, 2012. However, you can’t contribute to a Roth IRA if your income was over $122,000 (over $179,000 on a joint return).

* For 2012, you can’t contribute to a Roth IRA if your income is over $125,000 (over $183,000 on a joint return).

If you are shut out of Roth IRA contributions, you can make a non-deductible contribution to a traditional IRA. There are no income limits for such contributions. For both types of accounts in both years, you can contribute up to $5,000, or $6,000 if you are at least age 50.

Once you have the money in a traditional IRA, you can convert the funds to a Roth IRA. There are no income limits for these conversions. As long as you have no pretax money in any traditional IRA, a Roth IRA conversion won’t be taxed. If you have pretax money in a traditional IRA, in addition to aftertax contributions, a Roth IRA conversion will be partially taxable and partially tax-free