Should I convert to a Roth IRA?
The Roth IRA offers a number of advantages over its
traditional counterpart. These include:
• Tax-free distributions at retirement
• Ability to continue making
contributions beyond age 70-1/2
• No required minimum distributions
beginning in the year you turn 70-1/2
• Leaving assets to survivors
that are free from income taxes
However, conversions from a traditional IRA to a Roth IRA are subject to income tax since the original contributions were initially made with pre-tax dollars. Also, your modified adjusted gross income (MAGI) must not exceed $100,000 for you to be eligible for a Roth IRA conversion. If you believe that future tax rates will be higher than today, then you should consider a Roth conversion. There are no limits on the size of a conversion.
Assets converted to a Roth IRA must remain in the account for at least five years before any distributions are taken. Otherwise, a significant tax penalty may apply.
You'll maximize the potential for tax-free income later if you pay conversion taxes out of pocket, rather than withdrawal them from your IRA. If you can't pay conversion taxes without using part of your IRA funds, you probably shouldn't convert unless you are certain you will be in a high tax bracket during retirement.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, this information should be coordinated with individual professional advice. Source: Financial Visions, Inc.
