Roth IRA Income Limit changes

[RatherBeFishn]

I've heard that the income limits for ROTH IRA eligibility are going to increase in 2006. For example, currently eligibility for a ROTH starts to phasea out at 150,000 and is no longer an option at 160,000 (Married, joint). Does anyone know of any website where I can learn about what the new limits will be?

[RatherBeFishn]

Hmmm...I would just drop it but it was a Fidelity trainer who visited our company who said it. Any tax experts out there who know if the income limits for phaseout of ROTH IRA's is going to change in 2006?

[cute fuzzy bunny]

http://www.rothira.com/

[ESRBob]

Anybody else tuning into the new Roth 401k? I read today in SmartMoney that people are going to be able to contribute an unlimited amount of their income to them under certain conditions, but with no tax deductibility on the way in.

Not sure of the fine print, but that worried me a little.

If Roths get too easy, I wonder if some politician in the future will decide they are taxable after all.

Then those of us who paid our IRA taxes early to make the conversions will sure look foolish.

As long as Roths remain this little backwater that most people can't bring themselves to convert to, they'll fly under the radar. Being able to contribute all your income to a Roth (for those with other sources of income, for instance, or just those who want to live off their taxable savings and bank their salaries into the Roth 401k), sounds like a tax dream-come-true for the upper-echelon working stiffs.

Now when will they start letting us contribute unearned income to a Roth? That would be the retirees dream come true.

[MRGALT2U]

Re. "retirees dream come true", I have thought of that too. Another big surprise in my post ER life. I expected
to begin a regular draw on my IRA in 1993 (don't have a Roth). Have not started yet. I have no "earned income" but now I am thinking I might be advantageous to me to make more
IRA contributions. A concept unthinkable just a few years ago. All in all, ER worked out just fine for me
but many financial aspects are dramatically different
than I envisioned. I think I started a topic on
"Surprises in ER". I have had my share, but mostly
either good ones, or at least manageable.

JG

[bow-tie]

Anybody else tuning into the new Roth 401k? *I read today in SmartMoney that people are going to be able to contribute an unlimited amount of their income to them under certain conditions, but with no tax deductibility on the way in...

Bob,

Do you happen to know if what you read in SmartMoney is the same as what is described at http://lifetimesavingsaccount.com/ ?

The info on that website sounds too good to be true. It would greatly simplify things regarding all the classifications, ie IRA vs Roth IRA vs 401k vs 403B and on and on. And the tax benefits would rule.

[RatherBeFishn]

Thanks for the URL, TH. I looked over this site and didn't see any information about updated income limits on the ROTH IRA for phase-out. Keep in mind my question is regarding the phase-out of eligibility to contribute to a ROTH above certain incomes, not the changes in amounts which can be contributed in future years.

I've assumed that there is no published plan to increase the income limits, so I won't be doing Roth contributions after this year. So, let me change my question to this esteemed board then...where would you invest after you've maxed our your 401K and Roth isn't an option due to income. Tax efficient mutual fund? Other? Just looking for some ideas; not specific funds.

[Martha]

Thanks for the URL, TH. I looked over this site and didn't see any information about updated income limits on the ROTH IRA for phase-out. Keep in mind my question is regarding the phase-out of eligibility to contribute to a ROTH above certain incomes, not the changes in amounts which can be contributed in future years.

I've assumed that there is no published plan to increase the income limits, so I won't be doing Roth contributions after this year. So, let me change my question to this esteemed board then...where would you invest after you've maxed our your 401K and Roth isn't an option due to income. Tax efficient mutual fund? Other? Just looking for some ideas; not specific funds.

Removal of income limitations for ROTHs are still just talk, just like the talk about making 403(b)s more like 401(k)s. Who knows where it all will end up.

As a person still working and not eligible for a ROTH, we tend to put the income producing assets in my 401(k) and an old IRA of my husband's, and keep other assets in taxable accounts. Also, we are heavily into real estate partnerships/LLCs which return our capital and give us a depreciation deduction. When sold, we get capital gains except for the depreciation recapture.

Martha

[Cal]

Thanks for the URL, TH. I looked over this site and didn't see any information about updated income limits on the ROTH IRA for phase-out. Keep in mind my question is regarding the phase-out of eligibility to contribute to a ROTH above certain incomes, not the changes in amounts which can be contributed in future years.

I've assumed that there is no published plan to increase the income limits, so I won't be doing Roth contributions after this year. So, let *me change my question to this esteemed board then...where would you invest after you've maxed our your 401K and Roth isn't an option due to income. Tax efficient mutual fund? Other? Just looking for some ideas; not specific funds.

Can't you still contribute to a tradition IRA - it's just not deductible from your income but the gains grow tax deferred. Am I wrong about this?

[Martha]

Can't you still contribute to a tradition IRA - it's just not deductible from your income but the gains grow tax deferred. Am I wrong about this?

You can, but the down side is that the gains will be taxed at ordinary income rates when you do start drawing money out of the IRA.

[Hyperborea]

.where would you invest after you've maxed our your 401K and Roth isn't an option due to income. Tax efficient mutual fund? Other? Just looking for some ideas; not specific funds.

I max out my 401k and we haven't been eligible for Roths* or a spousal IRA for years. *What I do is to keep it in tax efficient index "funds" (I use ETFs). *Rebalancing is done only with new purchases in the taxable accounts and some buy/sell in the tax deferred accounts when the funds overlap.

* Besides the fact that Roths don't make a very good choice for non-US citizens planning to leave the US and live elsewhere later.

[ESRBob]

Bob,

Do you happen to know if what you read in SmartMoney is the same as what is described at http://lifetimesavingsaccount.com/ ?

The info on that website sounds too good to be true. It would greatly simplify things regarding all the classifications, ie IRA vs Roth IRA vs 401k vs 403B and on and on. And the tax benefits would rule.

BowTie,
I looked at both sites, and what was mentioned in SmartMoney (page 72, April 2005) was just the Roth 401k, which is apparently going to be renamed an ERSA. It is mentioned in the site TH sent us to, and appears to be different from the Lifetime Savings Account, as it is set up by employers like a traditional 401k. Maybe ERSA means Employer Retirement Savings Account as opposed to the RSA, the new name for the Roth, which just means Retirement Savings Account

I was wrong in what I implied in my previous post -- it is not that there will be no limit on the amount of income you can contribute to the Roth 401k, it is that there will be no income limit keeping you from contributing to the Roth 401k (as near as I can tell). Presumably, the amount you can contribute to the Roth 401k or any Roth will continue to be limited each year.

So, in the words of rosanne rosanna danna... "Never Mind..."

[Nords]

You can, but the down side is that the gains will be taxed at ordinary income rates when you do start drawing money out of the IRA.

True, but there may be a period in one's life when income drops again-- especially if you ER a few decades before RMD.

At that point the conventional IRA can be converted quite cheaply to a Roth and allowed to continue compounding-- but now tax-free.

[RatherBeFishn]

Thanks for all of your input on this topic. You've given me a couple of things to look into futher.