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The TIPRA did away with the $100,000 Modified Adjusted Gross Income (MAGI) limited and the requirement of joint filing by married taxpayers to convert traditional IRA into Roth IRA. However, this will not come into effect until 2010. All other rules stay the same. The amount converted to a Roth IRA will still be taxed as income at the highest tax rate for a high income person. The current law stipulates that a person who has a MAGI of more than $110,000 cannot make any contribution to a Roth IRA. This law also holds true for married couples whose combined earning is more than $160,000. Now that the ceiling for conversions has been removed, there will be no income limits for contributing to a Roth IRA.
TIPRA has created an opportunity for high income taxpayers to take benefit of a Roth IRA, which was earlier denied to them because of the ceiling on conversions.
Another retirement savings option available to high income taxpayers is the 401k. Here the taxpayer is not thinking about saving taxes. Rather he is concentrating on saving money for his retirement. There is no doubt that he would be able to save just $15,500 for 2007 and 2008, but that is something worth exploring. The added advantage of 401k for a high income taxpayer is the tax-saving aspect as all contributions are made from gross wages.
Many high income taxpayers also take advantage of an IRA (Individual Retirement Account). This account is set up as a trust and you can open it at any bank, mutual fund or stock broker. The maximum contribution for 2007 is $4,000 and for 2008 is $5,000. This is for people who are below 50 years of age. Those above 50 years can contribute an additional $1,000 as a part of the catch up plan.
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