Rollover IRA Contribution Limits

One of the first things you’ll need to realize about rollover IRA contribution limits is that rollover IRAs aren’t technically a distinct retirement account type recognized by the IRS.  However, it’s useful to think about your new IRA as a rollover IRA, especially when trying to consolidate all of your existing retirement investments in one place.  In addition, there are some specifics that you’ll want to keep in mind with regards to changes made to the retirement tax laws for fiscal year 2010.

Overall, the IRA contribution limits for 2010 have remained unchanged.  Since fiscal year 2008, the maximum amount of money that people under age 50 can contribute to any type of IRA is $5,000.  In the future, this limit will increase at a rate that’s tied to inflation.  In addition, there’s one other addendum – if you’ll be 50 years or older by the end of 2010, you can contribute an extra $1,000, for a total of $6,000.

These rules apply to both regular, non-Roth IRAs and Roth IRAs, although Roth IRAs are little more complex.  In this case, there are maximum income limits for contributions that apply to Roth IRAs.  Married individuals who file jointly can, in fiscal year 2010, contribute to a Roth IRA only if their modified adjusted gross income (MAGI) is below $167,000.  Individuals who wish to contribute to a Roth IRA must have a MAGI of less than $101,000.

However, a loophole was added to these rules for the 2010 tax year that makes it possible for anyone to convert a regular IRA to a Roth IRA, regardless of annual income.  In the past, similar income restrictions as those on regular Roth IRA limited eligibility in terms of those who were eligible to convert funds to a Roth IRA through an IRA rollover.  The change means that more people are able to take advantage of the benefits of Roth IRAs.

Be aware, though, that this loophole can create an interesting paradox.  Individuals and married couples that don’t meet the income restrictions for Roth IRAs are eligible to convert funds to this type of retirement account, but may not be able to contribute any further funds to them.  In these cases, it’s important to use the Roth IRA rollover as just one tool in your retirement toolbox.  While it may make sense to place some funds in an after-tax Roth, additional investment strategies will be necessary for future contributions.

So while there have been some very advantageous changes to these limitations, you need to ask yourself what’s in the best interests of your long-term goals.  Just because you can do something – such as a Roth IRA rollover – doesn’t necessarily mean you should.  When you make changes to your IRAs, you may be making changes in the tax status of the money you have set aside, which has the possibility of opening you up to a tax liability.

Your best bet is to consider all of your IRA rollover options with the advice of a financial professional.  Tax law can be complex, especially with the recent changes that have taken place.  To get the most out of your retirement savings, work together with a financial professional to make a plan that works for you and your family.

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