As of 1998, some taxpayers can set up an IRA that is backloaded. This means that the contributions are not deductible, but the withdrawals from the account, including all the buildup in value over the years, are tax-free as long as certain conditions are met; namely, that the withdrawals are made five years or more after the account was opened, and after you attain age 59 1/2 or have become disabled.

In 2006, joint filers with income under $150,000 can make full contributions of $4,000 ($5,000 if age 50 or older) piece to Roth IRAs; for those with income between $150,000 and $160,000, the contribution amount is phased down, until it is phased out completely at $160,000. For singles, the phase-out range is between $95,000 and $110,000, and for marrieds filing separately, the range is between $0 and $10,000.

For tax years beginning in 2007, the income limits for Roth IRA contributions will be indexed for inflation and rounded to the nearest multiple of $1,000. In 2007, for example, the contribution limit to Roth IRAs is $156,000 for taxpayers filing a joint return, $99,000 for all other taxpayers (except married taxpayers filing separately), and $0 for married taxpayers filing separately. However, the inflation indexing does not affect the phase-out ranges under present law. The phase-out range remains $15,000 for single taxpayers and $10,000 for married taxpayers.

Since contributions to Roth IRAs are not deductible, they are not reported on Form 1040 or 1040A.

You may be able to convert a "regular" IRA to a Roth IRA, if your adjusted gross income is under $100,000 (single or joint). The catch is that you must pay current income tax on the entire converted amount. If the conversion took place in 1998, the IRS allowed you to spread the tax over four years. The converted amount must remain in the account for five years; if it is withdrawn prematurely a 10 percent penalty will apply and any tax due on the conversion that has not already been paid (for instance, if it was to have been spread forward for four years) will become due in the year of the withdrawal.

Starting in 2010, the Tax Increase Prevention and Reconciliation Act of 2005 eliminates the $100,000 adjusted gross income ceiling for converting a regular IRA to a Roth IRA. A conversion is treated as a taxable distribution, but is not subject to the 10-percent early withdrawal penalty. Taxpayers who convert in 2010 can elect to recognize the conversion income in 2010 or average it over the next two years.

Tip The elimination of the $100,000 ceiling should have higher-income taxpayers and their financial advisors salivating. High-income taxpayers with substantial amounts in traditional IRAs previously were shut out of the benefits of conversion. Now, anyone can convert to a Roth IRA starting in 2010. There are several tax planning opportunities to consider now, though. Although this provision does not extend to 401(k) plans, nothing would prevent Roth IRA conversions of traditional IRAs that have received proceeds of 401(k) balances when an individual leaves employment. Nor does the new law prevent high-income taxpayers from contributing to nondeductible traditional IRAs now in anticipation of converting to Roth IRAs in 2010. Keep in mind that 2010 is also the last year for the current low income tax rates before they sunset in 2011. The rush to do Roth conversions in 2010 may be historic, especially if Congress does not extend the lower tax rates. So, plan ahead to take full advantage of this change in the law.

If you make a conversion from a traditional IRA to a Roth, you must report the conversion on IRS Form 8606, Nondeductible IRAs. If you converted in 1998 and elected to spread the amount over four years, report this year's taxable amount on Form 1040, line 15b.