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Roth IRAs allow some taxpayers to set up an IRA using nondeductible contributions. However, the withdrawals from the account, including all the buildup in value over the years, are tax-free as long as certain conditions are met: (1) the withdrawals are made five years or more after the account was opened, and (2) after you attain age 59-1/2 or have become disabled.
In 2011, joint filers with income under $169,000 can make full contributions of $5,000 ($6,000 if age 50 or older) apiece to Roth IRAs; for those with income between $169,000 and $179,000, the contribution amount is phased down, until it is phased out completely at $179,000. For singles and heads of households, the phase-out range is between $107,000 and $122,000. For marrieds filing separately, the range is between $0 and $10,000.
Since contributions to Roth IRAs are not deductible, they are not reported on Form 1040 or 1040A.
Roth IRA Conversions
Beginning in 2010, you can convert a "regular" IRA to a Roth IRA, regardless of adjusted gross income. The catch is that you must pay current income tax on the entire converted amount. The converted amount must remain in the account for five years; if it is withdrawn prematurely a 10 percent penalty will apply and any tax due on the conversion that has not already been paid will become due in the year of the withdrawal.
If you rolled over a traditional IRA into a Roth IRA in 2010 and elected to split the tax due as a result of the conversion between 2011 and 2012, you need to report one-half of the tax on your 2011 tax return.