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Good news: starting January 2nd, 2010 Roth IRA conversions are no longer limited by a person’s earnings. What does this mean? It means that IRA providers are encouraging their IRA account holders to convert them to the new Roth IRA. While chances are that converting would be good for your financial future, you need to weigh the good, bad, and the ugly when it comes to converting. After all, you might be better off leaving your money exactly where it is with your traditional IRA account. As you probably already know, a traditional IRA allows a person to deposit funds to a personal retirement account every year. The deposited funds are not subject to taxes (speak with a licensed agent to get the details). On the other hand, Roth IRAs allow individuals to deposit money into a personal retirement account and that money is not tax deductible. Then, in the future, the individual is allowed to withdraw funds from the Roth IRA account without paying taxes on the money withdrawn, even if it was revenue generated over the years while in the Roth IRA account. When employees switch companies or retire or otherwise get terminated from an employer, they are often given a grace period to decide what they wish to do with their retirement account. Traditionally, most employees transferred their money into a normal IRA account, and there is nothing wrong with that provided it’s the best vehicle for your needs. But the latest laws allow an individual to roll that money over into a Roth IRA which provides other benefits (most notably tax-free withdrawals at a later date). The most obvious benefit of transferring funds from a traditional IRA to a Roth IRA is the tax exemption on withdrawals. Who doesn’t prefer tax free withdrawals? Another benefit is that Roth IRAs do not have a forced withdrawal age. Most people don’t realize it, but a traditional IRA forces the account holder to start making withdrawals at age 71. With a Roth IRA, there is no forced age to start making withdrawals (probably because the withdrawals are tax free and a forced withdrawal wouldn’t provide revenue to the government). Everyone will draw social security at one point in their lives, and their monthly payments are subject to tax like normal earned income. With a traditional IRA, any withdrawals on the account would be considered taxable and would be added to your social security benefits, effectively raising your tax burden. But with a Roth IRA, your withdrawals will not affect your social security benefits and that will help keep your tax burden lower. If you are considering a Roth IRA conversion, you should speak with a licensed agent within your state for the most current, up-to-date information relating to IRAs. Each state has its own unique laws when it comes to retirement accounts; thus, you should seek counsel from a licensed agent within your state before making any financial decisions. |