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Roth IRA Conversions
If you’ve resisted the “pay now, tax-free later” concept behind the Roth IRA, or you had too much income to convert your traditional IRA, it may be time to reconsider the potential of this retirement tool. With a traditional IRA, earnings on your contributions are not taxed until you withdraw them. Depending on your income level, your contributions may be tax deductible. With some exceptions, you must wait to withdraw the money until age 59½, and you must begin taking withdrawals by age 70½. At the time of the withdrawal, you pay taxes on the earnings and the deductible contributions. With a Roth IRA, you do not get a tax deduction for your contributions. Earnings grow tax-free and withdrawals are tax free, subject to certain requirements. Roth IRAs have no required age for beginning distributions. You can withdraw contributions at any time and earnings after age 59½. The belief that taxes will be higher in the future has led some traditional IRA holders to convert all or part of their IRA balances to a Roth account. But that option was limited to those with modified adjusted gross income (MAGI) of less than $100,000. The MAGI cap on Roth IRAs is scheduled to be permanently repealed in 2010, opening the door to traditional IRA holders who previously did not qualify. To roll over your traditional IRA into a Roth, you would pay taxes on the traditional IRA from a separate account. (Paying the taxes with proceeds from the IRA is considered an early withdrawal and subject to a 10 percent penalty.) The account then grows tax-free, with no taxes due at distribution. A new rule from the IRS makes Roth IRAs even more attractive by providing a feature not available to IRA beneficiaries. The rule allows non-spouse beneficiaries of qualified plans – such as 401(k)s and 403(b)s – to convert an inherited plan balance to an inherited Roth IRA if the plan allows it. Beneficiaries of IRAs cannot convert those funds to a Roth IRA. Rules for MAGI and required minimum distributions apply, but using an inherited Roth IRA is an option beneficiaries should consider, especially once the MAGI cap disappears. These changes create opportunities to use Roth IRAs in your retirement and estate planning. The rules can be confusing, and it can be difficult to analyze the pros and cons of converting all or a portion of your IRA or inherited retirement plan balance to a Roth IRA. [I/We] can work with your tax advisor to help you weigh the benefits and risks of a Roth IRA rollover to determine whether it makes sense for you. Please call our office for an appointment to discuss the exciting changes in this retirement tool. Michael S Wallman of The Wallman Financial
Group is a Registered Representative with Securities America, Inc.,
a Registered Broker/Dealer, member NASD/SIPC. Advisory services
offered through Securities America Advisors, Inc., A SEC Registered
Investment Advisory firm. Michael can be reached at 305-374-2134 or by
e-mail at
mwallman@ Chamber member for over 10 years!
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