| I have some really good news for you. | | | | keep all that additional growth. |
| You may be able to roll over your existing IRA, | | | | 4. Manage, or potentially avoid, taxes on Social |
| SEP, SIMPLE IRA, 403(b) and 401(k) accounts into | | | | Security benefits. Did you know your Social |
| a Roth IRA in 2009 and insulate your retirement | | | | Security benefits in retirement are taxed if you |
| account from future federal income taxes. | | | | are married and your income from any pensions, |
| But wait, you say. You thought Roth conversions | | | | interest earnings, IRA distributions (either |
| are only available in 2010? | | | | voluntary to pay for your retirement or required |
| Fortunately, anyone reporting less than $100,000 | | | | minimum distributions) and ½ of your social |
| in adjusted gross earnings (and as long as they | | | | security payments exceed $32,000? Roth IRA |
| are not married filing a separate return) can | | | | distributions do not count towards the $32,000 |
| convert their retirement account into a Roth IRA | | | | income calculation threshold (the threshold is only |
| now and begin receiving the benefits of tax free | | | | $25,000 if you are single), thereby allowing you to |
| growth and future tax free distributions that only | | | | manage (or potentially avoid) paying taxes on |
| a Roth IRA offers. | | | | your Social Security benefits. |
| 2010 is the year the $100,000 adjusted gross | | | | 5. Stretch the power of tax free growth to your |
| income limitation is eliminated; meaning even more | | | | heirs. The tax advantages of a Roth IRA pass on |
| of us will be able to convert our retirement | | | | to your heirs (with certain stipulations), meaning |
| accounts into a Roth IRA. | | | | they can continue to receive the benefits of tax |
| So, what's the big deal, you ask? What makes a | | | | deferred growth and tax free distributions over |
| Roth IRA preferable to a traditional IRA, 401(k), | | | | their lifetime. |
| et al. and why should I consider converting my | | | | These are powerful benefits that form the |
| qualified savings to a Roth IRA right now? | | | | foundation of a magnificent retirement strategy. |
| The primary difference between traditional | | | | So, what is the catch? We all know that when |
| qualified plans (IRA, SEP, SIMPLE IRA, 401(k), etc.) | | | | the government gives they usually want |
| and a Roth IRA is the tax status of the money | | | | something in return. |
| you contribute to the different plans. Contributions | | | | In this case, the government wants its share of |
| to a Roth IRA are made with after tax money. | | | | taxes now. |
| Contributions to an IRA or 401(k) plan are | | | | Taxes must be paid on all pre-tax qualified savings |
| traditionally made with before tax money, | | | | converted into a Roth IRA from traditional IRAs, |
| meaning your taxable income is reduced by the | | | | 401(k)s, and other applicable qualified plans. |
| amount you contribute to the qualified plan. | | | | Additionally, anyone under 59 ½ cannot use |
| All of these plans grow tax deferred, however | | | | any of the converted funds to pay their taxes |
| the Roth IRA allows you to make tax free | | | | without incurring a 10% early withdrawal penalty. |
| withdrawals once you reach age 59 ½. The | | | | There are no early withdrawal penalties for the |
| other retirement plans require you to pay taxes | | | | conversion itself, regardless of age. |
| on your withdrawals. | | | | Obviously, no one enjoys paying taxes. Putting |
| Insulation from the payment of taxes on future | | | | payment off for another day may be the best |
| retirement savings is often incentive enough to | | | | alternative for many investors. One additional |
| encourage investors and retirees to investigate a | | | | advantage of waiting until 2010 to convert your |
| Roth conversion. Other advantages include: | | | | retirement account into a Roth IRA is the one |
| 1. Eliminate traditional IRA required minimum | | | | time provision that allows you to report half the |
| distributions. The government requires you to | | | | conversion on your 2011 tax return and half the |
| begin paying taxes on your IRA, and other | | | | conversion on your 2012 tax return, thereby |
| qualified accounts, once you reach 70 ½. | | | | spreading your tax costs over those two years. |
| They do this by forcing you to withdraw a | | | | On the other hand, converting your qualified |
| specific amount from your qualified account, as | | | | retirement account into a Roth IRA today may |
| determined by the required minimum distribution, | | | | allow you to put the pain of 2008 to good use. |
| or RMD, table in IRS Publication 590. Your annual | | | | Most investors suffered losses in 2008, meaning |
| required minimum distribution is reported on your | | | | they now owe less tax on a Roth conversion |
| tax return as income, and all applicable taxes are | | | | based on their current account value. A future |
| paid on the amount. There are no required | | | | market rebound, along with the very realistic |
| minimum distribution requirements in a Roth IRA. | | | | chance of higher future taxes, may result in a |
| 2. Protect your retirement savings from future | | | | higher tax bill in the future should you eventually |
| tax increases. IRA distributions are treated as | | | | decide to take advantage of the benefits of a |
| ordinary income. Future tax increases will drain a | | | | Roth conversion. |
| proportionally larger amount of your retirement | | | | Additionally, there are now investment strategies |
| nest egg as you make withdrawals. A Roth IRA | | | | that offer a deposit bonus of up to 10% on all |
| insulates you from future tax increases because | | | | invested assets. This means a $100,000 Roth |
| all withdrawals are made tax free. | | | | conversion is immediately credited as if the |
| 3. Leverage the compounded growth of your | | | | conversion totaled $110,000. While this bonus |
| retirement savings. All qualified plans allow your | | | | program might not be suitable for everyone, it is |
| savings to grow without the burden of taxes. This | | | | one more benefit to add into your decision |
| means you earn interest on your principle, earn | | | | making process. |
| interest on your interest and earn interest on the | | | | The suitability of any Roth conversion depends on |
| amount that would have been taken from you to | | | | your specific circumstances and I encourage you |
| pay any applicable taxes on your gains. A Roth | | | | to talk to a tax professional prior to making any |
| IRA leverages the compounding benefits of tax | | | | decisions. You must understand the tax |
| deferral by eliminating taxes on all withdrawals. | | | | consequences, restrictions and requirements of a |
| You not only get to grow your retirement | | | | Roth conversion to avoid making costly mistakes. |
| savings without the burden of taxes, you get to | | | | |