Make your Roth IRA contribution for 2012

Timothy Brown |

Contribute to a Roth IRA for a tax-beneficial way to save for retirement.


  • Contributions grow tax free.
  • No required minimum distributions (RMDs) from Roth IRA’s at age 70 ½ (unlike traditional IRAs).
  • A Roth IRA is an excellent account to name your young grandchildren on as beneficiaries. This would enable incredible growth and income opportunities for their life time.  They could receive tax free growth over their lifetime (subject to the annual distribution requirement).
  • You can withdraw your contributions tax free prior to age 59 1/2 if needed.
  • Withdrawals are penalty-free after age 59 ½. (subject to the 5 year rule*)

* 5 Year Rule: Roth IRA must exist at least five years before earnings can be withdrawn tax-free. Specifically, earnings can be withdrawn tax-free beginning on the first day of the fifth taxable year after the year the Roth IRA was established.

Contribution Amounts:

$5,000 per person in 2012 – subject MAGI limits*. ($1,000 “catch-up” contribution allowed for those over 50 years old).
You can make a spousal IRA contribution for a spouse without earned income.
*Phaseout of eligibility:

Single: $110,000-$125,000 MAGI   -   Married, Joint: $173,000-$183,000 MAGI     -   Married, Separate: $0-$10,000 MAGI  


  • Consider placing higher growth asset classes in the Roth, such as small cap value, small value, or REITs.  Given tax free nature, these accounts have huge growth opportunity over your life and whoever inherits it.

Tax Minimization Strategies:

  • Consider converting from an IRA into a Roth IRA in 2012, and pay the tax on the converted amount in 2012.  This is a good idea if you have funds outside the IRA to pay the taxes with.
  • Converting funds to a Roth IRA in 2012 vs. 2013 is wise at this point in time, given the Bush Tax Cuts are expiring and in all likelihood tax rates will be higher in 2013 (unless Congress acts).
  • A more complex strategy is to convert an IRA into multiple Roth IRAs and invest each into a different asset class. Before taxes are due, you would then have to “recharacterize” all but the best performing Roth IRA (i.e. convert back to a traditional IRA).  You would not pay taxes on those that were recharacterized, only on the best performing Roth IRA.