In 2010, regardless of your income, you can convert your Traditional IRA (or any other IRA) to a Roth IRA. This is an exciting opportunity for those who have been outside the eligibility bracket. The new year is coming up quickly, so do your research now, and get your assets ready to take advantage of this opportunity.
Roth IRA contributions are subject to income, but in 2010 the limits are removed for conversions. So if you've been ineligible to contribute to a Roth IRA because your income exceeded the limit, you can now convert your Traditional IRAs or dormant 401(k) plans to a Roth and enjoy the tax-free benefits that a Roth has to offer.
Keep in mind, however, that you will owe taxes on the conversion dollars that have not yet been taxed. Be sure to consult with your financial advisor before you decide if the conversion is right for you. The good news is that after you pay the taxes on the conversion, your future earnings are tax free. You can also spread your tax bill into 2012 to help ease the initial bite. Another benefit of dividing the tax payment is that it's an interest-free loan from the government from the time you do the conversion until you have to pay the tax. However, you do risk paying more tax in 2012 if the tax rates increase.
Whether you choose to pay the taxes all at once or divided over two years, either way, you will be on your way to funding retirement tax free.
It's important to be informed about the differences between a Traditional IRA and a Roth. Although there are many benefits to a Roth IRA, they are not for everyone. For example, Roth contributions are not tax-deductible. Consult with your financial advisor to help you make an informed decision that makes the most sense for your financial future and goals.
If you would like to set up a self-directed Roth IRA, let us help you get started.
For more information, contact:
Munzer Ghosheh, Business Development Manager
310-899-3811
MGhosheh@theentrustgroup.com