Of all the IRA rollover tax changes for 2010, the most important ones concern the Roth IRA – one of the more restrictive types of IRA rollover that includes move money into and out of. To gain a better understanding of the 2010 IRA rollover tax changes, you’ll first need to know how a Roth IRA is defined and how it interacts with other types of IRAs.

A Roth IRA is an account that’s made up of after-tax contributions.  Unlike traditional IRAs, the money you contribute to a Roth has already been taxed, so you won’t need to pay additional taxes when you withdraw funds at retirement.  But because of this distinction, funds from traditional IRAs and other tax advantaged accounts can’t be moved directly into a Roth account, as this would prevent the money from ever being taxed.  Instead, the funds must be “converted” to after-tax contributions before a Roth IRA rollover can occur.

In addition, before you can perform a rollover to or from a Roth IRA, there are a few conditions that you and your accounts must meet.  For starters, you must have an adjustable gross income that’s under the IRS limits, and you must have an open and established Roth IRA.  In addition, you must move any distributions from your qualified plan into your Roth IRA within a 60 day period; otherwise, they may be subject to taxes, mandatory withholding and early withdrawal penalties (if you’re under the minimum retirement age).

However, when it comes to Roth IRA rollovers, there are a few recent changes you’ll want to familiarize yourself with.  For example, in 2009, if you wanted to rollover any funds from your 401k, traditional IRA, 403b, or other qualified plan into your Roth IRA, you could do it only if your adjustable gross income was no more than $100,000.  But starting on January 2, 2010, anyone can take advantage of the Roth IRA tax deduction – regardless of income or tax filing status.  The new rules for 2010 also eliminate the ban on conversions for married persons filing separately.

Be aware though, that even though the $100,000 income limit on a conversion expires in 2010, this doesn’t affect the income limit for making annual Roth IRA contributions, as those are two very different things.  If you earn more than the Roth IRA phase out limits, you won’t be able to make any new contributions to the Roth IRA, regardless of whether or not you’re able to initiate the conversion under the new laws.

Additionally, the 2010 law changes decrease the IRA tax burden involved in a Roth IRA rollover.  You now have the option of paying half of the IRA tax burden on the Roth IRA rollover in 2011 and the other half in 2012.  However, know that this applies only to conversions done in 2010, so you should look at this as a onetime deal.  If you’re thinking a Roth conversion might be a good move for your financial future, it is worth looking into sooner rather than later.

If you’re interested in finding out more about the 2010 tax changes as they relate to IRA rollovers and IRA taxes, you can read more at the IRS website or contact the accountant who handles your taxes for more information on how these changes affect you specifically.