Now don’t get too excited, I am not talking about tax evasion here. Uncle Sam gives us a perfectly legal way to let our retirement money grow tax-free; it’s called Roth IRA. You contribute your post-tax money, up to $5,000 per year (as of 2008) and this money or the earnings it generates never get taxed again (unless you take the money out too early).
However, not everyone can contribute to Roth IRA. There are income ceilings - if you make more than a certain amount, your allowed contributions will decrease and eventually become zero. Here are the numbers:
- Single filers: Up to $99,000 (to qualify for a full contribution); $99,000-$114,000 (to be eligible for a partial contribution)
- Joint filers: Up to $156,000 (to qualify for a full contribution); $156,000-$166,000 (to be eligible for a partial contribution)
In the year 2010, these income limits will be removed and everyone, regardless of income, will be able to contribute to a Roth IRA. But what if your income is too large to qualify for a Roth contribution?
You can still put around $10,000 into your Roth IRA before the year 2010, that you otherwise would not be able to do! Here’s how.
You contribute $5,000 this year (2008), and, if the contribution limit does not change, another $5,000 in 2009 to a Traditional IRA. During the years 2010 and 2011, the income limits for the Roth IRA will be temporarily suspended and you will be able to roll your money over to a Roth IRA! You will have to pay income taxes on the earnings (or deduct any losses) that you generated between now and 2010; however, for the rest of the life of your Roth IRA, this money will grow tax-free. Thus, you end up with $10,000 money in your Roth IRA than you would if you did not do this.
Not a bad deal, is it?