Editor's Note: Tracy Byrnes will be answering questions throughout the tax season to help guide you through your return. Please send her an
I left my previous employer in November 2004. At that time, I rolled my company-sponsored 401(k) to an IRA at my new place of employment. Can I now convert the IRA to the Roth 401(k)? -- D.B. Tracy Byrnes: A Roth 401(k) plan can accept rollovers only from another Roth 401(k) plan, says Richard O' Donnell, tax analyst at RIA, a provider of tax information and software to tax professionals. So you can't convert your IRA to a Roth 401(k). A distribution from a Roth 401(k) plan can be rolled over into another Roth 401(k) plan or a Roth IRA, says O'Donnell. But you can't go from regular IRA to a Roth 401(k). But I still love these new Roth 401(k)s -- especially for folks with higher incomes. As a refresher, it's a new retirement-savings vehicle that combines the features of the traditional 401(k) with those of the Roth IRA. Contributions to the Roth 401(k) are made with after-tax dollars and the account grows tax-free -- just like a regular Roth. The big difference here: There are no income limitations for Roth 401(k)s like there are with regular Roths. So you can make as much money as you want and still contribute to it. (Remember, you can no longer contribute to a Roth IRA once your married filing joint income hits $160,000.) Even better, the contribution limits follow the 401(k) rules. That means you can contribute up to $15,000 for 2006, or $20,000 for those 50 or older by the end of the year. The Roth IRA contributions are limited to $4,000 a year, or $5,000 for those 50 or older in 2006. Just be aware that the $15,000 limit applies to both your regular 401(k) and your Roth 401(k) -- so you have to decide how you're going to divvy up the money. My wife is a stay-at-home mum. But we are both foster parents and provide for children under the state shelter program for children. Payments are made to us to cover expenses for the keep of the children. No tax is due on this money and my wife shows no earnings on our joint annual tax return. I earn around $60,000 per annum. Does my wife qualify to contribute into a Roth IRA? -- A. M. As long as you file a joint tax return, you'll work off your combined income. In that instance, your wife doesn't need any earnings to make a contribution.