IRA not deductible - convert to Roth someday?

[spncity]

Greetings all

Hope I'm posting this in the correct section - you're invited to advise this newcomer:

1. Can individuals still contribute to traditional IRAs even though they make too much for the contributions to be deductible (and they are precluded from contributing at all to a ROTH)?

2. If so, even though the initial contribution is not tax deductible, the account will grow tax deferred?

3. Then, a few years down the road when moving to part-time jobs and thus lower income rates, can these traditional IRAs convert to ROTH IRAs - thus (sort of) making up for the years of not being able to contribut to ROTH accounts? (I realize there are taxes to be paid if allowed to convert).

Thank you!

spncity

[KM]

I believe the answer to all of the above is Yes...or at least I hope it is, as that is what I am planning to do.

[Nords]

Originally Posted by spncity

1. Can individuals still contribute to traditional IRAs even though they make too much for the contributions to be deductible (and they are precluded from contributing at all to a ROTH)?
2. If so, even though the initial contribution is not tax deductible, the account will grow tax deferred?
3. Then, a few years down the road when moving to part-time jobs and thus lower income rates, can these traditional IRAs convert to ROTH IRAs - thus (sort of) making up for the years of not being able to contribut to ROTH accounts? (I realize there are taxes to be paid if allowed to convert).

Welcome to the board, spncity.

The answer to all of your questions is "Yes", although it's not always financially advisable to convert a conventional IRA to a Roth. The issue is a multi-variable problem with a lot of exceptions.

Search old threads for "Roth IRA", "conversion", and "IRS pub 590". Here's a few to get you started:
http://early-retirement.org/forums/i...p?topic=2199.0
http://early-retirement.org/forums/i...p?topic=7175.0
http://early-retirement.org/forums/i...p?topic=7783.0
http://early-retirement.org/forums/i...p?topic=7800.0
http://early-retirement.org/forums/i...p?topic=8170.0
http://early-retirement.org/forums/i...p?topic=9874.0
http://early-retirement.org/forums/i...p?topic=9141.0
http://early-retirement.org/forums/i...?topic=10635.0

[spncity]

Hoo-weee.....

I read them all (a few threads to get you started) and I'm feeling a little loopy :P

Also discovered some additional ER worksheets this weekend - which make me realize that I have a more fundamental question... about saving more to current investments.

So, I'll probably fund the TIRA even though it's not deductible - which buys me a year to try to figure out the strategy going forward.

Thank you!
spncity

[Texas Proud]

The answer is yes to all as you now know....

And I am sure that the threads said you could convert in 2010 no matter how much you make...

But now I have to figure if I want to convert then or convert later when I have less taxable income, hence lower tax rate...

[spncity]

Yes - exactly my dilemma!

Has anyone yet uncovered or found a calculator that let's us model converting TIRAs to Roths ?

Would like to see what it looks like to convert while working and what it looks like to convert after leaving workforce.

spncity

[Nords]

Originally Posted by spncity

Yes - exactly my dilemma!
Has anyone yet uncovered or found a calculator that let's us model converting TIRAs to Roths ?
Would like to see what it looks like to convert while working and what it looks like to convert after leaving workforce.

Well, you can read up on Roth IRAs at Fairmark.com and then choose a calculator.

There are also many "Roth IRA conversion calculators" floating around the Internet if you google that quoted phrase.

But essentially if you're working then it's easy to be in a 25% income-tax bracket. If you're not working then it's easier to convert an IRA to a Roth up to the limit of the 15% tax bracket. So your savings will be 25% of whatever amount you would've gone into that bracket...