Skip to main content

Your IRA Questions Answered

Money Girl responds to readers' queries about their IRA strategies.

The following is a transcript of " Money Girl's Quick and Dirty Tips for a Richer Life," a podcast from The audio program is available via RSS feed here and at's podcast home page.

Hello and welcome to

Money Girl's Quick and Dirty Tips for a Richer Life


Today's topic: more answers to your questions about investing for retirement.

Several of you have asked questions about investing for retirement and I want to answer some more of your questions in today's episode.

Taxes and Converting to a Roth

A listener named Ashish emailed me with this question:

Can I contribute to a traditional IRA account after taxes? I don't qualify for tax deductions due to income limits. I'm doing this so that I can convert my traditional IRA to a Roth in the year 2010. Secondly, will I have to pay taxes at the conversion time in 2010 if I contribute to a traditional IRA after taxes?

Great questions, Ashish.

The answer to your first question is yes. You can make


contributions to a traditional IRA even if you're not eligible to make deductible contributions. Although you miss out on the tax deduction, you still get the benefit of tax-deferred earnings growth. The IRA contribution limit for 2007 is $4,000 and it will go up to $5,000 in 2008. If you're age 50 or older, you can contribute an additional $1,000.

To fully deduct contributions to a traditional IRA, your modified adjusted gross income must be less than $62,000 for 2007 if you're single. If you're married filing jointly, your income must be less than $103,000 to fully deduct your contributions.

Advantages of Converting to a Roth in 2010

Your strategy to contribute to a traditional IRA now so that you can convert it to a Roth in the year 2010 is an excellent one. Since your income is too high to allow you to contribute to a Roth now, by planning ahead and contributing to a traditional IRA first, you'll have a healthy sum to convert to a Roth come 2010.

There are two reasons why 2010 is a magic year: First, the IRS is removing the income restriction on Roth conversions in 2010. Anyone can convert existing IRA assets to a Roth in 2010, even high-income earners with modified adjusted gross incomes over $100,000. And second, you'll be allowed to pay the federal tax on the converted amount over two years instead of having to pay it all in one tax year. You can pay half the tax in the year 2011 and the other half in 2012. Spreading out the tax burden over two years makes it a lot easier to manage.

The answer to your second question about whether you'll have to pay taxes on the amount you convert to a Roth takes a little explaining. In your situation, you won't need to pay income tax on the contributions you convert from your traditional IRA to a Roth because you contributed after-tax money and did not deduct your contributions. You've already paid tax on the contributions, so you won't have to pay tax again when converting it to a Roth. However, you will need to pay tax on the earnings. And, if you


made any deductible contributions, you would need to pay tax on those too.

Switching from a Traditional to a Roth

And here's a question from another listener:

Hi, Money Girl. I love the show. My name is John from Florida and my question is this: I am not a high earner and I would like to go to a Roth IRA. I've been investing in a traditional IRA for about 10 years now and I'm not certain how to get out of the traditional and get into the Roth, or even if I can make my contributions now into a Roth and kind of park the traditional. It's all confusing to me and I hope you can help me. Thank you.

Hey there, John. Switching from a traditional IRA to a Roth IRA is really straightforward. All you need to do is open a new Roth IRA account and begin contributing to it. To contribute to a Roth IRA, your modified adjusted gross income must be $99,000 or less in 2007 if you're single or $156,000 or less if you're married filing jointly. At higher incomes, you can make partial contributions. (*See note.)

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.

Elizabeth Carlassare is the creator of the

Money Girl podcast. A business and technology writer, investor, and former mortgage loan officer, she has a long-standing passion for helping people make the most of their money. She is the author of the Internet business book, "Dotcom Divas," and has been interviewed on more than 60 regional and national radio programs, and featured on C-SPAN Book TV. Elizabeth holds an M.S. from the University of California, Berkeley. She has spoken internationally on the topic of women's entrepreneurship and access to capital. To request a topic or share a money tip, send an email to or call 877-6-RICHER.