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E-mailIf you convert or roll funds over in 2010, you have the choice of including the amount of the conversion or rollover in your 2010 income or including the income across the 2011 and 2012 tax years.
• You may wait to report the taxable amount of the funds converted or rolled over in 2010 as income in 2011 and 2012. However, under current law, the current tax rates will expire at the end of 2010 and several marginal rates will revert to rates in effect prior to the passing of the Economic Growth and Tax Relief and Reconciliation Act of 2001. Those who wait to pay the tax in 2011 and 2012 may be faced with a higher tax rate.
• If you wait to spread the tax out over the next two years, you don't pay income tax in 2010 on the taxable amount of the funds converted or rolled over. You might not go into a higher tax bracket.
Roth IRA
Unlike traditional IRAs, Roth IRAs are not subject to lifetime minimum distribution rules. Another reason to consider a Roth IRA is if you believe your federal income tax will increase over time.
If the idea of tax-free income during retirement sounds good to you, then it's time to look into a Roth IRA. Benefits include the following:
• Tax-free distribution of earnings if certain conditions are met
• Tax-deferred growth of earnings
• No lifetime minimum distribution requirements
If you have questions, talk with your VALIC financial advisor to learn more.
Expanded access in 2010
In 2010, you have an exceptional opportunity to take advantage of the powerful features of a Roth IRA and save on income taxes at the same time -- even if income restrictions have previously prevented you from investing in a Roth IRA.
The Tax Increase Prevention and Reconciliation Act of 2005 eliminated the $100,000 income limit for qualified rollovers to a Roth IRA beginning in 2010. The Pension Protection Act of 2006 made possible the direct rollover of funds from a pretax eligible retirement plan to a Roth IRA. This opens the door to the benefits of a Roth IRA to persons who had not previously been eligible because of income restrictions. You can make qualified rollovers to a Roth IRA as follows:
• Convert funds from a traditional IRA
• Roll over funds from an eligible retirement plan
There is no limit to the amount you may convert or roll over.
• Age 59½
• Qualifying first-time home purchase
• Total disability
• Death
In addition to rollovers or conversions, you might be able to make yearly contributions to your Roth IRA if you have earned income.
• $5,000 maximum contribution in 2010
Contributions to a Roth IRA are never tax-deductible. Limits are indexed yearly by the IRS. To contribute to a Roth IRA, your adjusted gross income (AGI) must fall beneath a set limit. There is a "phase-out" range for persons in higher income ranges:
| 2010 Roth IRA Contribution Limit | |||
| Filing Status | You can contribute up to $5,000 if your modified AGI is: | The amount you can contribute is reduced if your modifed AGI is: | You cannot contribute to a Roth IRA if your modified AGI is: |
| Married, filing jointly | Less than $167,000 | At least $167,000, but less than $177,000 | $177,000 or more |
| Single filer | Less than $105,000 | At least $105,000 but less than $120,000 | $120,000 or more |
Age-based catch-up contribution of an additional $1,000 in 2010 is available for those ages 50 or older.
The information is general in nature and may be subject to change. Neither VALIC nor its financial advisors or other representatives give legal or tax advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For legal or tax advice concerning your situation, consult your attorney or professional tax advisor.