Roth and the Income Limits
Taxpayers with AGI of $100,000 or less may roll over or convert amounts to a Roth IRA from a traditional IRA during any taxable year without incurring the 10% early withdrawal penalty. However, the amounts rolled over are included in gross income.
The new law permits a first-time homebuyer, beginning in 1998, to withdraw up to $10,000 (during the individual's lifetime) from his or her IRA for expenses of purchasing a home for the first time without incurring the 10% early withdrawal penalty.
Specifically, the new law increases the phase-out ranges for deductible IRA contributions. For taxable years beginning in 1998, the phase-out range for single taxpayers is between $30,000 and $40,000 of adjusted gross income (AGI) and between $50,000 and $60,000 of AGI for joint filers. The phase-out range for single filers is scheduled to increase to AGI of between $50,000 and $60,000 in 2005 and thereafter. For joint filers, the phase-out range is scheduled to increase to AGI of between $80,000 and $100,000 in 2007 and thereafter.
Under the new law, an individual is not considered an active participant in an employer-sponsored retirement plan merely because the individual's spouse is an active participant. Thus, a non-active participant, whose spouse is an active participant, can make deductible IRA contributions. However, these deductible IRA contributions are phased-out for taxpayers with AGI between $150,000 and $160,000.