| With great adversity comes great opportunity. | | | | each year from the account. Because you didn't |
| While nobody likes to see the account balances in | | | | get an up-front tax deduction for your Roth IRA, |
| their IRA drop 40% or more, the reduced value | | | | you're not required to take RMD's. |
| in your IRA may make it an opportune time to | | | | Reasons Not To Convert |
| convert your Traditional IRA to a Roth IRA since | | | | 1. Taxes. When you convert from a Traditional to |
| it will cost you much less in taxes than it would | | | | a Roth IRA, you'll need cash to pay taxes on the |
| have in any of the past 4 years. | | | | earnings and pre-tax contributions you made. |
| Traditional IRA vs. Roth IRA Basics | | | | Warning: you can't use your IRA to pay the taxes |
| A Traditional IRA allows you, with some | | | | since the amount you use for taxes would be |
| limitations, to deduct your IRA contribution when | | | | considered an early withdrawal, subject to income |
| you make it. Over time, your account grows | | | | tax and a penalty. |
| tax-free until you start taking distributions. Once | | | | 2. You anticipate being in a lower tax bracket in |
| you begin to take distributions, the amount you | | | | the future. If you're currently in the 35% tax |
| take each year after age 59 ½ is taxed at | | | | bracket and you think you'll be in the 25% |
| your rate at your current income tax rate. | | | | bracket in retirement, you'll be paying taxes at |
| A Roth IRA on the other hand, does not provide | | | | your higher current rate. |
| you with an up-front tax deduction. Like the | | | | Who Is Eligible to Convert? |
| Traditional IRA, your account grows tax-free but, | | | | In 2009, in order to be eligible to convert your |
| unlike a Traditional IRA, when you take | | | | IRA, you must have an Adjusted Gross Income |
| distributions there is NO tax liability. | | | | (AGI) of less than $100,000. In 2010, there will be |
| Why Convert? | | | | no income limitation on a Roth conversion. |
| Roth IRA's have four big advantages: | | | | Do-Over |
| 1. Tax-free growth. Like a Traditional IRA, the | | | | If the market continues to tank through 2010, the |
| growth in your account is not taxes. | | | | government has provided you with the ability to |
| 2. Tax-free withdrawals. As long as you've owned | | | | take a mulligan. Otherwise known as a |
| your Roth IRA for five years or have reached | | | | 're-characterization', this give you until October 15, |
| age 59 ½, the amount you take out of the | | | | 2010 to reverse your decision to do the |
| account is not taxed. | | | | conversion in 2009 and re-do it on the new lower |
| 3. Contributions can be made after age 70 | | | | amount in your IRA. |
| ½. While you can longer make contributions | | | | Consult a Professional |
| after age 70 ½ in your Traditional IRA, | | | | The tax code is a fluid, complex animal. Before |
| there is no such restriction for the Roth IRA. | | | | undertaking this type of conversion, be sure to |
| 4. No mandatory distributions. In a Traditional IRA, | | | | consult your CPA or tax professional to ensure |
| one you reach age 70 ½, you must start | | | | that you do everything right to avoid an |
| taking Required Minimum Distributions (RMD's) | | | | unnecessary complications. |