If you’re currently not eligible to contribute to a Roth IRA because you’re being phased out, you should consider starting a Traditional IRA so that you can convert it to a Roth IRA in 2010, when income restrictions for those eligible to convert are lifted. Right now, if you earn more than $100,000, you are not eligible to convert any of your Traditional IRA into a Roth IRA. When President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005, it lifted the restriction and so starting in 2010, you can convert. Those Traditional IRAs that are converted in 2010, you can spread the tax payment out across 2011 and 2012.
So, the plan would thus be to contribute to the Traditional IRA, deduct it from your taxes, then wait until 2010 when you can convert the sum over to a Roth IRA. If you currently are participating in your employer’s 401K, then your Traditional IRA contributions may not be tax deductible so you won’t even have to pay the tax when you convert.
Please check with a tax professional before making decisions regarding this as I may have my facts wrong or my interpretation is inaccurate.
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