Roth IRA conversions are not permitted for taxpayers whose income exceeds $100,000. This limit is the same for single taxpayers and for couples filing jointly. Starting this year, though, minimum required distributions (MRD) from a traditional IRA won’t count towards the $100,000 income limit.
To see how this might work, suppose Bob Carter is beyond age 70 1/2 so he is required to take MRD from his traditional IRA. Each year, his other income (excluding MRD) is around $85,000 while his MRD runs to about $25,000 per year.
In 2004, Bob’s $25,000 MRD and his $85,000 of other income put him over the $100,000 ceiling so he could not convert his traditional IRA to a Roth IRA.
Starting in 2005, Bob’s MRD won’t count, in this calculation. As long as Bob (who files as a single taxpayer) keeps his other income below $100,000, he can convert all or part of his traditional IRA to a Roth IRA, paying the deferred tax. Eventually, he can take tax-free withdrawals from his Roth IRA.
