Roth IRA Rules for Married Couples

As a single woman, I contributed to a Roth IRA for several years. This year I am expecting to earn approximately $110,000, which is below the income cutoff limit for making Roth contributions. However, I got married a couple of months ago, and my husband will earn about $200,000 this year. What should I do? Can I reallocate my Roth investments to a traditional IRA, or do we exceed the income level for a regular IRA, too?

Congratulations on your marriage! Although you meet the income limit for an individual -- modified adjusted gross income of $120,000 or less -- you and your husband's joint income is too high for you to make additional contributions to a Roth now that you're married. In 2009, married couples filing jointly can contribute to a Roth IRA only if their joint income is $176,000 or less (and the contribution amount starts to phase out if your modified adjusted gross income is more than $166,000, or more than $105,000 for singles).

Filing separately won't help, either -- a married person filing separately can contribute to a Roth IRA only if his or her modified adjusted gross income is less than $10,000. That's right, only $10,000 because Uncle Sam doesn't want married couples gaming the system by filing separately. See IRS Publication 590 for details.

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You don't have to do anything about contributions you made to a Roth in previous years (or the earnings on those contributions). But you will need to remove any money that you contributed to a Roth in 2009.

The good news is that it's easy to shift the money. You can ask the IRA sponsor to move your 2009 Roth contribution -- and its earnings -- to a traditional IRA. (The sponsor will figure out how much the 2009 contribution earned between the time you deposited it and when you move it to a traditional IRA.) As long as you make this change before the tax-filing deadline on April 15, 2010, the law treats it as though you had originally contributed the money to a traditional IRA. For more information, see Fixing a Roth IRA Snafu.

There is no income limit for contributing to a traditional IRA, but your income may affect whether you can deduct your contributions. If either you or your husband is covered by a retirement plan at work, your income is too high to claim the deduction. But that's okay. Currently, you can roll over money from a traditional IRA to a Roth only in years your adjusted gross income is below $100,000 (whether married or single). But that $100,000 limit disappears in 2010. At that point, you can roll the money from the traditional IRA into a Roth and benefit from tax-free income in the account from then on. You have to pay tax on any earnings at the time of the conversion, but because you didn't deduct the money going into the traditional IRA, you don't have to pay tax on that amount in the year of the conversion. See Is There a Roth IRA in Your Future? for more information about converting a traditional IRA to a Roth in 2010, including details about how the IRA is taxed if you have both pretax and after-tax traditional IRA contributions.