An Unanswered Question About Roth IRA’s

Here is today’s question: What is the sound of one hand clapping?

No, wait. That’s not the question. The question is this: Starting in 2010, are Roth IRA contributions limited to those with low Adjusted Gross Income (AGI, for short)?

You may recall from February 10’s post that if you have earned income you can make a contribution of up to $5,000 to a Roth IRA ($6,000 if you’ve reached age 50), but only if your AGI does not exceed specified limits ($105,000 if you’re single; $166,000 if married filing jointly; with a $10,000 to $15,000 phase-out range where life gets complicated).

But Congress changed the law so that starting in 2010, anyone, regardless of their AGI, can convert a traditional IRA to a Roth IRA. So if you want to make a $5,000 Roth IRA contribution, but your AGI exceeds the above-mentioned limits, what’s to stop you from contributing your $5,000 (or $6,000) to a traditional IRA, and then immediately turning around and converting that to a Roth IRA? As far as I know, nothing.

So although Congress did not expressly do away with AGI limits on Roth IRA contributions, did they inadvertently do so by opening a back door? I think so. I invite any reader who has some wisdom on this question to post a comment or send me an email. Even better if you can cite some authority.