Flipping Your Ira Into A Roth
- Date: 2007-04-28 - Word Count: 515
Share This!
For tax purposes, many people are considering converting their IRA to a Roth. Alas, there are a number of factors you need to take into account before doing this.
The Roth IRA is often so attractive that holders of Traditional IRAs seek to convert their account into a Roth. This is something that needs to be given some careful evaluation. The first thing, of course, is to make sure you are qualified. There are certain rules regarding conversions that must be considered first. There is a 60-day limit on conversions and other regulations that might make the conversion impossible.
If you are qualified to make a conversion, the next problem is to determine if you are qualified for a Roth IRA. If you are doing an IRA conversion to Roth IRA, you must meet the gross income qualification. This eligibility requirement is currently $99,000 for a single tax payer and $156,000 for married filing jointly. If your income is over this you cannot convert to a Roth IRA. It is not possible for married people to get around this limit by filing separately. The rules specifically prohibit married people who file separately from converting a Traditional IRA to a Roth IRA.
You will have to pay taxes when you make the conversion. The reason for this is that you have not paid them when you deposited funds into the Traditional IRA and you are not going to have to pay them when you withdraw the funds from the Roth IRA. You are going to have to pay them sometime. There is no escape from that. The time they are paid is at the time of the conversion. This is an important consideration. Some people plan to pay the taxes with a portion of the distribution and then convert the remainder into the Roth IRA. This plan will involve not only the taxes, but also an early withdrawal penalty of 10%.
If you have excessive funds available that can handle the tax burden and can conversion the entire distribution without penalty, you are going to be better off in the long run. It is important to have some kind of projection of your future earnings and investment prospects. The major advantage of a Roth IRA is the fact that it defers earnings from taxation when they are distributed after age 59 and a half. There is also no mandatory withdrawal after the age of 70 and a half like there is with a Traditional IRA. Finally, the Roth IRA will have advantages over the Traditional IRA if you become wealthy enough that estate tax becomes an issue.
A person needs to have a comprehensive, coordinated, and continuous financial plan to give him the best chance of reaching retirement age financially secure. The issue of a retirement account has to be fitted into this plan in a way that produces the best results when considering your own individual situation. The advice of a financial professional can come in handy when considering the possibility of an IRA conversion to Roth IRA. This is true of just about any major decision concerning IRAs.
The Roth IRA is often so attractive that holders of Traditional IRAs seek to convert their account into a Roth. This is something that needs to be given some careful evaluation. The first thing, of course, is to make sure you are qualified. There are certain rules regarding conversions that must be considered first. There is a 60-day limit on conversions and other regulations that might make the conversion impossible.
If you are qualified to make a conversion, the next problem is to determine if you are qualified for a Roth IRA. If you are doing an IRA conversion to Roth IRA, you must meet the gross income qualification. This eligibility requirement is currently $99,000 for a single tax payer and $156,000 for married filing jointly. If your income is over this you cannot convert to a Roth IRA. It is not possible for married people to get around this limit by filing separately. The rules specifically prohibit married people who file separately from converting a Traditional IRA to a Roth IRA.
You will have to pay taxes when you make the conversion. The reason for this is that you have not paid them when you deposited funds into the Traditional IRA and you are not going to have to pay them when you withdraw the funds from the Roth IRA. You are going to have to pay them sometime. There is no escape from that. The time they are paid is at the time of the conversion. This is an important consideration. Some people plan to pay the taxes with a portion of the distribution and then convert the remainder into the Roth IRA. This plan will involve not only the taxes, but also an early withdrawal penalty of 10%.
If you have excessive funds available that can handle the tax burden and can conversion the entire distribution without penalty, you are going to be better off in the long run. It is important to have some kind of projection of your future earnings and investment prospects. The major advantage of a Roth IRA is the fact that it defers earnings from taxation when they are distributed after age 59 and a half. There is also no mandatory withdrawal after the age of 70 and a half like there is with a Traditional IRA. Finally, the Roth IRA will have advantages over the Traditional IRA if you become wealthy enough that estate tax becomes an issue.
A person needs to have a comprehensive, coordinated, and continuous financial plan to give him the best chance of reaching retirement age financially secure. The issue of a retirement account has to be fitted into this plan in a way that produces the best results when considering your own individual situation. The advice of a financial professional can come in handy when considering the possibility of an IRA conversion to Roth IRA. This is true of just about any major decision concerning IRAs.
Related Tags: retire, retirement, saving, convert, conversion, ira, converting, retiring, roth
Get more IRA information at UFCAmerica.com. Your Article Search Directory : Find in Articles
Recent articles in this category:
- Guide To Finding The Right Irs Debt Help Solution For Your Situation
Finding the right IRS debt help for your situation is crucial. Where you turn for assistance will de - The Basic Function Of Accounting
Accounting is a profession as old as the hills. It was a well known practice in the Roman, Ancient E - The Fundamental Concepts Of Accounting
The Federal Election was held in Australia on 21st of August 2010. During the rather boring election - Higher Earners Warned Over Tax Relief
Those that fall into the higher earners bracket have been warned that the government may impose furt - Procter & Gamble Wins R&d Credit Case Against The Irs
On June 25, 2010, the U.S. District Court in Procter & Gamble Co. and Subsidiaries (P&G) v. United S - 3 Ways To Settle Irs Tax Debt For Less
You can settle IRS tax debt for less if you know your options. There are several ways that you can s - Five Steps To Finding The Best Tax Lead Company For Your Business
The lead buying business has become an efficient and proven form of outsourcing marketing efforts to - Truly Effective International Tax Advice
A big concern for the public and corporate business units is to deal with the international tax at t - How To Avoid Making The Common Tax And Bookkeeping Mistakes?
Even though who consider themselves in the financial loop may fall prey to some of the most common t - How To Appeal Your Property Tax Bill
The responsible homeowner will want to do a thorough check of their property tax bill to ensure they
Most viewed articles in this category:
- New Tax Rules for the Poor
New tax rules for 2007 will bring about a good year for the poorest of tax-filers in Maryland. Tax-f - The Best LEGAL Tax Shelter in the World-- Your Home-Based Business!
Welcome to the best legal tax shelter in the world-- you home-based business! As long as you keep go - Income Tax Questions Answered Because of Radio - The World Is a Client of "Better Business"
Having hosted a financial radio program over several years has exposed me to many questions. Some of - IRS Alert: Tax Payers Need to be on the Look out for Fraud
Tax-Definition.org (http://www.tax-definition.org) is reporting on the second part of the tax - 2007 Brings Tax Relief for N.Y. Residents
As of January 1, 2007, New York residents have been benefiting from a decrease in hospital bills, an - Figuring Out Your Tax Return Filing Status
When you are ready to plop down and start preparing that tax return, one of the first questions is y - Lost Last Year's Tax Return?
It happens every year. Just when you get motivated to get rolling on your taxes, you realize you can - IRS Is Focusing on Schedule C Filers
In the last few tax years IRS has been paying more attention to taxpayers who file a schedule C. The - Estate Taxes
Federal estate tax applies to the transfer of property at death. The estate of a person who died is - Deductions Missed In Taxes
The deductions which are often missed by tax payers are as follows: Old points on refinancing: The