Doing taxes every year always makes me reflect on our investment vehicles and allocation strategy. I certainly don’t have it all down pat, but one particular area that I’ve been looking at is our IRA situation, particularly given the recent change in rules that allows anyone to convert traditional IRAs into Roth IRAs by lifting the income limitation that was previously in place.
We’ve decided that in our case, converting to a Roth IRA in 2010 is probably not ideal (one reason being that, we live in CA and may not be here our entire lives, so it’s not clear there’s a benefit to paying that extra ~10% tax). In all fairness, the varieties and possible combinations of IRAs that you can possess, convert, and roll over is impressively complex, and it takes a long time (and/or the assistance of a financial planner) to figure out what’s right for your particular situation. If you’re interested in learning about the 2010 Roth IRA conversion, there’s literature-a-plenty to be found, but I found a pretty straightforward explanation about 2010 IRA conversion rules and tax implications that should get you started.
What’s more, we are fortunate (in a sense) to both exceed the limit for being able to contribute to either a Roth IRA or to be able to take a tax deduction for contributing to a traditional IRA. But we’ve decided to continue making yearly contributions to a traditional but non-deductible IRA for the following reasons: