Converting a Traditional IRA to a Roth IRA

November 18, 2011 at 6:06 am Leave a comment

CaMu Financial & Insurance Services, Inc., offers clients access to asset management and estate planning solutions that provide them with guaranteed sources of continued earnings throughout their retirement years. The Taxpayer Relief Act of 1997 contains a key provision that allows the rollover of a traditional IRA into a Roth IRA. Of the 11 types of IRAs available, traditional and Roth IRAs are the most common, and each has distinct benefits and drawbacks. Traditional IRAs offer tax-deferment benefits until retirement, generally age 59 and 1/2, when the money can be withdrawn penalty-free. On the other hand, Roth IRAs are not tax deductible initially but are completely tax-free at the time of withdrawal. This includes all earnings, as long as the Roth IRA has been established for longer than five years and the withdrawal is not taken early.

Converting to a Roth IRA affords distinct tax advantages for many, but not for all. The benefits of converting from a traditional to a Roth IRA are highly dependent on a number of factors, including projected retirement income tax liabilities and current income tax rate. A Roth IRA rollover generally makes sense for those who expect to be in a higher tax bracket, or expect taxes to have risen, when they withdraw their money. The Roth IRA rollover is not for everyone; some lack sufficient disposable funds outside of IRA accounts to pay the income taxes due when the rollover takes place. The positive news about this one-time tax payment is that it functions as an additional contribution to the Roth IRA, compounding tax-free until withdrawal. To learn about retirement planning solutions that go beyond a Roth IRA rollover, consult with an experienced financial advisor. CaMu Financial’s certified retirement specialists offer complimentary, toll-free consultations at 877-368-6464.

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