The tax law allows you to convert a traditional individual retirement arrangement (IRA) to a Roth IRA. A Roth IRA can provide you with a potentially tax-free source of retirement income. That's not the case with your traditional IRA, since withdrawals must be included in your taxable income (except to the extent of any contributions that weren't tax deductible).
Although converting involves an up-front tax cost, it still can be a good tax strategy for some people. Here are a few details to help you decide whether a Roth IRA conversion is a strategy you should consider.
Roth IRA basics
Contributions to a Roth IRA are made with after-tax money. Generally, once you've held a Roth IRA for five tax years and you're over the age of 59½ (and in some other circumstances), all Roth IRA withdrawals — including investment earnings — are tax free. And unlike a traditional IRA that has annual minimum distribution requirements once you reach 70½, you don't have to withdraw money from your Roth IRA unless you want to.
If you don't need the money in your Roth IRA, you can keep it invested in your account on an income-tax-free basis for as long as you like. Eventually, your heirs could benefit.
Taxes on the conversion
You will, though, owe income taxes when you convert a traditional IRA to a Roth IRA. The taxable conversion amount is included in your taxable income in the year of conversion.
So, should you convert?
A Roth conversion might work for you if:
Your financial and tax professionals can help you determine if converting a traditional IRA to a Roth IRA is right for your situation.
FINRA Reference #FR2012-1030-0152/E 02/04/13
Although converting involves an up-front tax cost, it still can be a good tax strategy for some people. Here are a few details to help you decide whether a Roth IRA conversion is a strategy you should consider.
Roth IRA basics
Contributions to a Roth IRA are made with after-tax money. Generally, once you've held a Roth IRA for five tax years and you're over the age of 59½ (and in some other circumstances), all Roth IRA withdrawals — including investment earnings — are tax free. And unlike a traditional IRA that has annual minimum distribution requirements once you reach 70½, you don't have to withdraw money from your Roth IRA unless you want to.
If you don't need the money in your Roth IRA, you can keep it invested in your account on an income-tax-free basis for as long as you like. Eventually, your heirs could benefit.
Taxes on the conversion
You will, though, owe income taxes when you convert a traditional IRA to a Roth IRA. The taxable conversion amount is included in your taxable income in the year of conversion.
So, should you convert?
A Roth conversion might work for you if:
- You're younger.
- Your traditional IRA is small or you made nondeductible contributions to your traditional IRA.
- You have enough money outside your IRA to pay the tax on the conversion.
- You expect your tax bracket to be higher in retirement.
Your financial and tax professionals can help you determine if converting a traditional IRA to a Roth IRA is right for your situation.
FINRA Reference #FR2012-1030-0152/E 02/04/13
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We Value Your Input... Your feedback is very important to us. If you have any questions about any of the subjects covered here, or suggestions for future issues, please don't hesitate to call. It's always a pleasure to hear from you.
This is an advertisement prepared by LTM Publishing, Inc. for the use of the sender. Articles are not written or produced by the named representative. The advertisement provided is not intended as legal or tax advice and may not be relied on for purposes of avoiding federal tax penalties. All individuals, including those involved in the estate planning process, are advised to meet with their tax and legal professionals. The individual sponsoring this newsletter will work with your tax and legal advisors to help select appropriate product solutions. We do not endorse or guarantee the content or services of any website mentioned in this newsletter. We encourage you to review the privacy policy of each website you visit. Limitations, restrictions and other rules and regulations apply to many of the financial and insurance products and concepts presented in this newsletter, and they may differ according to individual situations. The publisher does not assume liability for financial decisions based on the newsletter's contents. Great care has been taken to ensure the accuracy of the newsletter copy at press time; however, markets and tax information can change suddenly. Whole or partial reproduction of Let's Talk Money® without the written permission of the publisher is forbidden. ©LTM Publishing, Inc., 2013.
We Value Your Input... Your feedback is very important to us. If you have any questions about any of the subjects covered here, or suggestions for future issues, please don't hesitate to call. It's always a pleasure to hear from you.