Posted byon March 15, 2010
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This is the first article in a series on Roth IRA conversions this week.
As you probably know, there are no longer income limits for future retirees hoping to convert traditional IRAs to Roth IRAs.
Previously, only those with income under $100,000 could take advantage of the superior tax treatment of a Roth. Today, the Roth IRA conversion rules allow anyone to convert existing funds, even if you make too much to contribute new savings to a Roth IRA.
A Roth IRA is the Cadillac of retirement plans. It is funded with after-tax dollars and allows you to:
If you are the owner of a traditional IRA, you may want to convert all or part of the funds to a Roth. The Pension Protection Act of 2006 also allows you to convert assets from 401(k)s or similar employer plans directly to a Roth IRA. You will have to pay tax on any deductible contributions. However, once the conversion is done you will never pay taxes on any eligible withdrawals!
If you are under 59.5, Roth IRA contributions generally have to remain in the account for 5 years after conversion before they can be withdrawn. So you should not convert any amount you might need in the next 5 years.
Converting to a Roth IRA is simple. It requires a little paperwork with your IRA account manager and reporting to the IRS. Specifically, you should take the following steps if you are interested in a conversion:
Check out Should You Do a Roth Conversion?