Your IRA Questions Answered

As for the money you've previously contributed to your traditional IRA, you have two choices: (1) You can leave it right where it is, or (2) you can convert some or all of it to a Roth.

If you convert the money in your traditional IRA to a Roth, you'll need to pay federal income tax on the taxable amount you choose to convert. Earnings and deductible contributions you've made to your traditional IRA are subject to tax when they're converted to a Roth. Before deciding whether to convert money from a traditional to a Roth IRA, first estimate the amount of tax you would need to pay to see if it's something you can afford and want to do.

Keep in mind that the amount you convert from a traditional to a Roth is treated as taxable income and adds to your earnings for the year. If converting the entire amount pushes you into a higher tax bracket, you might want to convert smaller portions over multiple years to avoid paying income taxes at a higher rate.

And remember: If you convert money you've contributed to a traditional IRA to a Roth in the year 2010, you'll be able to pay the tax over two years instead of one.

Cha-ching! That's all for now, courtesy of Money Girl, your guide to a richer life.

As always, everyone's situation is different, so be sure to consult a tax or financial advisor before making important financial decisions. This podcast is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice.

Note: For 2007, you may make a partial contribution to a Roth if you're single and your modified adjusted gross income is between $99,000 and $114,000. If you're married filing jointly, you can make a partial Roth contribution if your modified adjusted gross income is between $156,000 and $166,000.