- June 23, 2010
- Posted by: Parker Evans, CFA, CFP, CMT
- Categories: Government Policy, Retirement Strategies
The Roth Individual Retirement Arrangement (IRA) allows non-deductible contributions and tax-free accumulation and withdrawals. Beginning in tax year 2010, you may regardless of your income, convert a (tax-deferred) Traditional IRA to a Roth IRA. However, should you? Roth IRA conversions can be complicated but here are three simple rules of thumb:
- If you expect to pay a higher tax rate in the future on traditional IRA withdrawals, then you should consider doing a Roth conversion now at the current lower tax rate.
- For maximum benefit, you should pay for the conversion taxes with non-IRA money.
- A person who has no IRAs, and has too much income to do a direct Roth contribution should consider making a non-deductible Traditional IRA contribution and then doing a conversion.
Call Successful Portfolios at (800) 454-6419 for help with your IRA. For spreadsheet jockeys who like to do their own financial modeling, download Successful Portfolios Roth Conversion Analyzer here: (Excel File).