In 2010, the income rules for Traditional IRA to Roth IRA conversions will be lifted. It’s known as the 2010 Traditional IRA conversion loophole and it will let anyone get themselves a Roth IRA if they are patient and willing.
The current rule states that anyone with income greater than $100,000 cannot convert a Traditional IRA into a Roth IRA. Also, the current Roth IRA income phaseout limits run from $101,000 to $116,000. That means someone with an income of $100,000 or more essentially cannot take full advantage of the Roth IRA.
The solution is for you to take advantage of the loophole by contribution to a Traditional IRA. To take advantage of this, it’s very important for you to open a Traditional IRA that is not part of any existing IRA. When you do this, you will contribute to the Traditional IRA, no deduct the contribution from your taxes when you file, and then do the conversion in 2010 when the loophole presents itself.
It is important that you keep the paperwork very clear, which is facilitated by opening this special account, otherwise you run into some problems later. For example, if you contribute to another Traditional IRA that you have deducted from, you can’t elect to convert the portion that was nondeductible. You have to take it in percentages from each bucket, which can be a headache.
So, if you are going to be taking advantage of the loophole, be sure to open a separate account to keep things nice and clean.