To Roth or Not To Roth... That IS the Question!
Posted by Andrea Vassiliadis on Wed, Mar 24, 2010 @ 10:18 AM
While 2010 has brought an unprecedented opportunity in the Roth arena, it is not a decision to make casually. I cannot over emphasize the fact that each individual looking at the pros and cons of this must have professional help from a tax advisor, a financial advisor or an estate attorney.
It all comes down to some major number crunching, based on the accounts you hold (and their rules), your tax brackets (now and at time of your retirement), your age, and your short term/long term needs for that money. Simple, right? NOT! Get professional advice to sort it all out.
Roth has come around as a hot topic again because the income limit that historically held individuals back from being able to convert their Traditional IRAs or qualified retirement plan accounts to a ROTH IRA, is sunsetting* this year (thanks to a provision of the TIPRA - Tax Increase Prevention and Reconciliation Act of 2005). In addition, during 2010, taxpayers who convert their assets will have the option to forego paying taxes on the conversion on their 2010 tax returns. Instead, taxpayers can include the taxable portion of the conversion on their 2011 and 2012 returns.
There are many subtleties to consider, but a Roth IRA may be generally appropriate if:
- you can pay the taxes OUTSIDE of your IRA or employer plan
- you have a long time before you will need the assets
- you want to eliminate having to take Required Minimum Distributions from these funds during your life time
Converting won't make sense for everyone. If it does make sense for you, the tax savings can be significant. I would certainly recommend taking a closer look and giving it some extra thought this year!
*Sunsetting refers to the income limit expiring at the end of 2010.