Today’s USA Today has a good article on tax issues surrounding retirement….Retiring doesn’t mean retiring from taxes. It explains the wisdom to “stuff as much into a Roth IRA as you can”. So, if possible, it is wise to contribute the $4000 a year to a Roth ($5000 if you’re over 50). However, high wage earners aren’t allowed to contribute to a Roth (single filers earning over $95k in 2006 and couples earning over $160k). These individuals then should strongly consider the dreaded non-deductible IRA.

I can’t deduct my contribution to an IRA because I qualify for a 401K plan through my employer. And if my spouse and I exceed $160k in AGI (Adjusted Gross Income) this year precluding us from a Roth contribution, it now makes sense for us to put $4k into a non-deductible IRA. This is because, as the USA Today article states:

“A quirk in the tax law will let you convert your regular IRA to a Roth. You’ll have to pay taxes on your gains to make that conversion. But you can spread out those tax payments, making half in 2011 and the other half in 2012. For higher-income investors, it’s about the only opportunity to open a Roth.”

Suze Orman had a great article on Yahoo on this subject back in December in her article, An IRA Nest Egg You Can’t Pass Up. Seems like a really nice loophole to me.

Update: The Wall Street Journal does an excellent job explaining the 2010 IRA-to-Roth and all the associated issues.