Retirement & Financial Planning Report

In 2005, the opportunity to covert a traditional IRA to a Roth IRA has become available to more taxpayers. The income limit remains $100,000 but mandatory withdrawals from traditional IRAs no longer count toward the income calculation. As a result, converting to a Roth IRA is now an option for many people who couldn’t qualify last year.


Suppose, for example, Lynn Brown has $85,000 in gross income each year. She’s over age 70 1/2, so she’s taking minimum required distributions from her traditional IRA. In 2004, she had to withdraw $20,000 from her IRA, putting her over the $100,000 limit and ruling out a Roth IRA conversion.


This year, though, her IRA distribution won’t count towards the $100,000 ceiling. If her other income is under $100,000, she can convert her traditional IRA to a Roth IRA, which eventually can provide tax-free income.