Roth IRA – Retirement Plan Holey Grail?

With all of the buzz in the investment/retirement planning community about Roth IRA's as a result of the January 1^st elimination of the $100,000 modified adjusted gross income threshold for converting a traditional IRA to a Roth IRA, you would think that they're the only game in town. Although the two main attractions of a Roth IRA that were introduced in last week's blog post, Year of the Conversion, i.e., nontaxable distributions and no required minimum distributions ("RMD's"), are two desirable benefits of any retirement plan, there is a price you must pay to obtain them.

The Ideal Retirement Plan

In order to understand the Roth IRA club entry fee, let's take a step back and examine the eight features of an ideal retirement plan to see which ones are present or lacking in a Roth IRA:

1. Contribution ability not subject to income test
2. Fully deductible contributions
3. Unlimited contribution amounts
4. Nontaxable income
5. Nontaxable distributions
6. Distributions at any age without penalties
7. No required minimum distributions
8. No income tax liability upon conversion to the plan