Roth Conversions

Next year there will be a once in a lifetime opportunity (at least thus far) to convert your traditional IRA into a Roth IRA with the ability to spread the taxes out over two years. Also, starting in 2010 there will be no limit on who can convert their IRA into a Roth. In the past if your household income was over $100,000 you were not allowed to convert.

If you're unfamiliar with the difference between IRAs and Roth IRAs here is as simple a definition that I can give: For a traditional IRA you contribute pre-tax dollars which brings your taxable income down now, but when you take it out during retirement it is taxed at ordinary income tax rate (you don't know what that will be by time you get there). In a Roth IRA you contribute after tax dollars, but your account grows tax free. When you take it out you don't pay any taxes on it. Also, with an IRA you are required to start taking distributions at age 70 1/2 based on life expectancy, whereas in a Roth there are no required minimum distributions.

So you see the benefit of being able to convert your IRA to a Roth: your money can grow tax free from now until you retire or need the money. This conversion may not be right for everyone. One major reason that may keep it from being beneficial is if you don't have the capital to pay the taxes. More than likely you wouldn't want to pull money out of your IRA to pay taxes because there are penalties when pulling money out of your IRA before 59 1/2.

There are many other issues to consider when deciding whether or not to convert. Read more about the conversion in the articles below. If you want to talk more about it we'd love to hear from you.

Yahoo Finance- Converting an IRA into a Roth?

Money-Zine.com 2010 Roth IRA Conversions