IRA Changes in 2010

To plan for retirement you should begin contributing to an IRA when you begin working your first job. However, it is never too early to plan for retirement; you can open an account prior to 18 years old.

You should contribute 10-20% of your total monthly income to savings and retirement to ensure you have enough money to cover your monthly expenses during your retirement years. When you retire you will need at least 60% of your yearly salary to cover your monthly expenses.

An Individual Retirement Account (IRA) or traditional IRA is a personal savings plan which allows you to put money aside for retirement and provides tax benefits. You may eligible to deduct a portion or all of your contributions to your IRA and may be eligible for a tax credit equal to a percentage of your contribution.

Money in your IRA is not taxed until the money is distributed to you. IRA's cannot be owned jointly. To contribute to an IRA you must be under age 70 1/2 at the end of the tax year.

A Roth IRA is personal savings plan that follows the same rules of a traditional IRA but you cannot deduct contributions to a Roth IRA. However, the initial contribution is taxed but future distributions are tax free.

Contributions can be made to your Roth IRA after you reach age 70½ and you can leave money in your Roth IRA as long as you live. There are limits on the amount that can be contributed yearly to a Roth IRA.

Starting in 2010, you can convert a traditional IRA to a Roth IRA. Anyone can convert as much of their qualifying retirement accounts into a Roth IRA as they like. For conversions in 2010, conversion taxes can be spread over two years: 2010 and 2011.

For conversions after 2010, taxpayers will have to pay the full tax due. Married couples filing a separate return can now convert or rollover amounts to a Roth IRA. Contributions can be made to your Roth IRA regardless of your age. Once you're 59 1/2, funds can be withdrawn whenever you like.

Talk to a financial advisor before you make any changes to your IRA to ensure conversion to a Roth IRA is the best decision for you.