Traditional to Roth IRA Conversion:Factors to Consider

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Powerpoint slides on a superior retirement planning strategy called Roth IRA on Roids which allows for tax-free distributions, tax-free growth, guaranteed principal and guarateed death benefits.Most have the choice of converting from a traditional IRA to a Roth IRA. This decision is based on various factors and could provide a huge financial boon over the long run given the right parameters – tens of thousands in most cases. For most people, a Roth IRA conversion is beneficial, but there may be circumstances when this financial move can be detrimental. Knowing how it affects you is the key.

Roth IRAs are available to people below a certain income limit. This fact may prevent some workers from being eligible. Current tax brackets also play a large role in making this decision. It is best to carefully weigh all the pros and cons before making this decision.

To make an informed decision, individuals must familiarize themselves with Roth IRA rules. First, the individual must determine if they are eligible to convert their regular IRA to Roth. One of the main determining factors is current income. If an individual has a single tax filing income of less than $100,000 annually, they can make the conversion. If the individuals' tax status is married and filing separately they will not be able to make the conversion. This rule does not apply if the spouses have lived apart for the entire tax year. If the money being converted was acquired from another person's traditional IRA, it cannot be converted to a Roth fund. Keep in mind that the entire amount of the traditional IRA must be converted. It is not possible to only convert non-taxable amounts. There is one thing to consider when making the conversion. If you have concerns about the amount of money you earn during the year, the limit will no longer apply in the year 2010. If this is a main point in the decision making, it may be best to wait till 2010 and make the conversion. Then there will be no worries regarding the Roth IRA limits.

Income Tax Brackets

An important thing to remember is that all traditional IRAs that are converted to Roth will be taxed. The entire amount that is transferred from the account will be considered income and will be taxed accordingly. This is where the tax bracket comes into play. Individuals should be aware of their current bracket. This will help them determine the amount of taxes that will be due when the IRA is converted. This is one of the major considerations. Converting to a Roth IRA will save you money in the long run, especially if your tax bracket is likely to change. The amount of taxes that are required to be paid can be a substantial amount, but the benefits of the conversion will outweigh this tax. After the conversion is complete, your new Roth IRA will be a great source of non-taxable income in the future. Keep in mind that if you have two IRA accounts, it is not required that they both be converted. It is possible to only convert one, leaving one traditional IRA and one Roth IRA.

Tax brackets will play a large role in the decision making. Investors should try to estimate what their tax bracket will be when they are ready to withdraw from the IRA. If your tax bracket will be lower upon retirement, making a conversion will probably not be beneficial. This is because the amount that will be required in tax payments upon the conversion will be at a higher rate than when the money is withdrawn after retirement. However, if a higher tax bracket is predicted, it would be beneficial to proceed with the conversion. An additional factor to consider is the tax rates in the future. With the government's new deficits, what are the chances that the tax rates will increase? Many experts believe it is necessary for them to increase in the future. IRA withdrawal rules differ between traditional and Roth accounts. To ensure a tax-free income, a Roth IRA is the better choice between the two choices. There may be other retirement options to choose from as well. If the individual will be in a low tax bracket, a traditional account could remain the better option. The amount of taxes paid to make the conversion versus the amount of taxes paid upon traditional withdrawal should be compared. This is one of the major factors in making the conversion decision.

Best IRA Rescue.com offers the Roth on Roids as one of the best IRA tax-savings strategies with benefits of a guaranteed death benefit and principal, tax-free growth and distributions. Call us toll-free: 888-93ULTRA (888-938-5872) today! There is an exception to the tax rules when converting. Read part 2 of this 2-part series: Roth IRA Conversion Tax Rules

Rocco Beatrice, CPA, MST (Master of Science in Taxation), MBA (Master of Business Administration), BSBA (Management/Accounting), CWPP (Certified Wealth Preservation Planner), CMMB (Certified Mortgage Broker), CAPP (Certified Asset Protection Planner), Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an asset protection, award-winning trust, estate planning and tax expert.

If you are seeking for the best return on your IRA and Roth IRA investments while reducing your taxes then call us now for your initial, completely FREE, no obligation, no sales pressure, 100% total & complete client privacy consultation. Call us toll-free now at 888-93-ULTRA (888-938-5872)!

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