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Among the many preparations needed for retirement and estate planning, retirement savings provide a fantastic tax shelter. However, to maximize those tax savings you have to understand the Roth IRA rules and requirements.

Basically, the contributions you make to a traditional retirement plan are done on a pretax basis - employers match your contributions and those contributions are tax-deductible.

With a Roth IRA, the contributions aren’t deductible, but income earned and future withdrawals are tax free.

To learn more about Roth IRA and traditional IRA rules, read on for information that can help you amp up your savings and earnings.

The Roth IRA

Roth IRA contributions are limited at $5000 per tax year. However, if you’re 51 or over, you can contribute up to $6000 to a Roth IRA. In 2009, those contribution limitations are expected to increase based on current inflation rates. They will go up in $500 increments.

Unfortunately, Roth IRA contributions are subject to eligibility limitations too. For example, a married couple that jointly earned between $150,000 and $160,000 or higher, or a single individual who earns $95,000 to $110,000 or higher can’t contribute to a Roth IRA. Instead, they must depend on a 401(k) Roth.

The 401(k) Roth Plan

Employees can now opt to make some of their elective retirement contributions Roth contributions. Historically, any deferred salary or 401(k) contributions were deducted from your taxable wages. However, any contributions considered Roth contributions to a 401(k) Roth are now included in a person’s taxable wages, though they may be free from federal income taxation.

The beauty of a Roth 401(k) is that there are no income restrictions on it. That means that no matter what your Modified AGI is, you can make contributions to a Roth 401(k). Also, the contribution limit is much higher. For those 50 and under, it’s $15,000 and $20,000 for those over 50. There’s also potential of a greater return on investment (ROI) thanks to the higher contribution limits.

Converting a Traditional IRA to a Roth IRA

To make the conversion from a traditional IRA to a Roth IRA, you must have an AGI (Adjusted Gross Income) of less than $100,000. If you are married but filing separate forms, case conversions are typically not allowed. And though the amount converted is considered taxable income, any future growth will be tax-free. Another benefit? There are no minimum distribution requirements at age 70.

If you’re concerned about the Adjusted Gross Income restrictions currently in place for Roth IRA conversions, there is good news on the horizon. After 2010, new Roth IRA rules will eliminated the $100,000 income limit on conversions from traditional IRAs to Roth IRAs. Also, any taxes due on 2010 conversions can be paid in a two-year installment.