The new rules for Roth IRA’s have a lot of firms and experts training their advisors on new Roth IRA rules and advantages to people saving and investing for their retirement. The new changes are part of the Tax Increase Prevention and Reconciliation Act of 2005 know as TIPRA, under this measure all taxpayers regardless of income will be able to convert all or part of their IRA’s into Roth IRA’s. The special TIPRA offer to split income converted from a traditional IRA to a Roth IRA in 2010 has financial analyst excited about all the money they will likely make due to this offering. For example if you transfer $100,000 from your IRA to a Roth IRA in 2010 you can claim $50,000 in 2011 and the other $50,000 in 2012 which is a nice tax deferral. You have the opportunity to split the tax bill over two years, however you do not have to split the income from the IRA transfer if you find it to your advantage to claim the income all in one year.

You may say why would you want a Roth IRA the answer is you can withdraw your money from the Roth IRA tax free once you have had the money in the account for 5 years and you are 59 ½ according to Ed Scott an IRA Advisor. Understanding the conversion of funds to a Roth IRA, funds converted from a traditional IRA to a Roth IRA are taxable though the 10% early withdrawal fee is not charged that usually applies to early withdrawal or distributions prior to 59 ½. However if you withdraw your funds from the Roth IRA prior to 59 ½ you will be charged the 10% early distribution fee even if you have met the 5 year criteria for withdrawing the money tax free. Traditional IRA owners can do the Roth IRA conversion with no problem, and even 401 k owners and 403 b and 457 plans can do Roth IRA conversions if their funds are eligible to take a distribution and are also eligible for rollover to an IRA. Some may wonder if they can do a conversion of part of their IRA to a Roth IRA and the answer is yes you certainly can do transfer only part of your IRA if you like.

Some have nondeductible traditional IRA’s, then you have to consider the total amount of all your IRA’s when converting all or part of them and use the prorate rule as well. For example if you have $1,000,000 in four IRA’s and $100,000 after tax contributions in one, Uncle Sam will only tax you on 90% of the amount converted to Roth IRA, but also you can’t only convert the nondeductible IRA.

If you use the TIPRA rules for 2010 to your advantage you can secure a Roth IRA and work toward achieving your financial and retirement goals.