Last week, we dealt with readers who earn too much money to contribute to Roth IRAs, This week, we turn to a legal strategy for accomplishing the same goal: getting more assets into a Roth individual retirement account. Two weeks in a row. Doesn't seem like I have enough money to benefit from reading their website.

You'll probably have multiple employers over time. Set up an IRA at a good low cost broker - Vanguard, T. Rowe Price, Fidelity - and when you leave a job, roll your 401(k) monies into your IRA. Consolidation will make not only your paperwork easier to create a proper allocation mix (and annual re-allocation), it will also be a great relief to your heirs. Yes, I know you're young and healthy, but believe me, it is a LOT easier to keep the beneficiary designations updated on ONE consolidated IRA account, rather than the half-dozen assorted 401(k)s you've created after a while! Right now my nephew/niece and I are beating up on their dad (figuratively, of course!) because he has 401k funds at possibly 7 or 8 companies. I think my sister, his ex-wife, is still listed as beneficiary on most of them. Since she's got a million bucks in the bank and is semi-retired by choice, and he'd prefer the money go to his kids, it seems rather foolish to be risking letting his paperwork go - particularly since he suffered an unexpected heart attack recently! Really, you'll find life is much simpler if you consolidate your accounts. All it usually takes, once you've set up the IRA, is a phone call and a few simple pages to fill out.

You can also convert a traditional IRA to a Roth, but there are some tricky restrictions to doing this, some of which involve tax rules scheduled to change up to and through 2010. I don't normally like to post an entire article from the WSJournal. But this particular question posed to their ENCORE section (which specifically deals with retirement and financial questions) might be of specific interest to some folks considering Roth conversions. Contribution Methods Sway Roth Withdrawal Rules May 31, 2008; WSJournal Encore section Q: We couldn't contribute to our Roth IRA this year because of the income limits. I noted that we could contribute to a nondeductible IRA and then later convert it to a Roth, assuming we are under the $100,000 income limit or wait until 2010. My question: Since we already have the Roth accounts open, am I right in assuming there is no five-year waiting period to make penalty-free withdrawals? Also, am I right in assuming that you can convert a nondeductible IRA into an existing Roth IRA? --B. from Virginia. The way the five-year waiting period works depends on the way you're putting money into a Roth individual retirement account. There's one set of rules for making penalty-free withdrawals if you are contributing to a Roth IRA, and another set for Roth IRA conversions. Roth IRAs are attractive because they have no withdrawal requirements for the account's owner, along with no tax on future earnings on their assets, unlike traditional IRAs. As you note, there are income limits for making Roth IRA contributions. For 2008, your income must fall below $101,000 for an individual or $159,000 for couples filing jointly. If your income exceeds those limits, though, you may still be able to make a partial contribution (described in Publication 590 at www.irs.gov1). There are no income limits for contributions to a nondeductible, traditional IRA, which you could convert to a Roth later. (One note: If you have pretax money in any IRA, you would owe some income tax on the conversion. Publication 590 explains how to do the math.) This year and next, you can convert a traditional IRA to a Roth if your modified adjusted gross income is no more than $100,000 a year, either for an individual or married couple filing jointly. Modified adjusted gross income is essentially all of your income except for that from any Roth IRA conversions and a few other exceptions. Publication 590 includes a work sheet explaining how to calculate this amount, along with more about what does and doesn't count toward modified adjusted gross income. Starting in 2010, there are no income limits for Roth conversions. And in 2010 only, you can spread the income and accompanying tax from a Roth conversion across 2011 and 2012. Once you've socked away money in a Roth IRA, either through a regular contribution or by converting other IRA assets, when can you take the money out without a penalty? You can withdraw your original contributions at any time with no penalty -- an advantage that a lot of people don't realize. But there is a five-year waiting period for withdrawals of any earnings. The five-year clock for earnings on regular contributions starts the year you open your first Roth IRA, and it doesn't reset each time you make a contribution. You also have to turn 59 years old to avoid a 10% penalty for early withdrawals on any earnings, along with income tax. There's a separate five-year clock for assets you convert to a Roth account from other retirement accounts, says Ed Slott, an IRA consultant in Rockville Centre, N.Y. You have to hold those specific assets in a Roth for five years or until you turn 59½, whichever comes first, to make penalty-free withdrawals. Why the separate five-year waiting period? The federal government wants to make sure Roth conversions aren't used as a penalty-free way to raid traditional IRAs early, Mr. Slott says.

No one can answer this without way more detailed data. You need to share: -What your AGI was last year -Your total tax bill last year -How much tax was witheld last year -How much you owe the IRS from the difference between the 2 above -What penalties and interest they are charging you (including details on when more penalties are being added) -What sort of payments you are making now, and what you are able to make if you squeeze your budget a little more. -What your income is projected to be this year -How big your retirement nest egg is, and in what form (401k, IRA, Roth, etc.) -How old your husband is If you care to open your kimono and share all that, we might be able to provide you a little more educated guess, but the mathematical answer depends on your info above. For example, if you owe $10,000 and your income is $100,000 the answer is probably "just tighten your belt and pay it off in a few months." If you owe $100,000 and your income is $10,000, then you might have no other options than your retirement nest egg, regardless of how big it is. But all the other stuff factors in as well, like how fast the penalties and interest are piling up and what tax bracket you're in now.