All thing Money
IRA Converion
29/10/09 14:11
Individual Retirement Accounts (IRA) are one of the most powerful tools in your arsenal for building wealth. They allow you to build wealth either tax-deferred (Traditional IRA) or tax-free (Roth IRA). The tax deferred option allows you to make contributions and invest on a “pre-tax” basis and pay taxes only on any money you withdraw. The tax-free option allows you to make contributions and invest on an “after-tax” basis and pay no taxes on any money you withdraw.
Neither one of these solutions is the right answer for everyone. The right answer depends on a variety of factors including your current effective tax bracket and your future effective tax bracket. What I like to ask is, “Right now I have mortgage interest deductions, dependent deductions, and business deductions, so my effective tax bracket is quite low. When I’m retired my mortgage interest deduction will be low if any, my non-deductible kids had better be moved out, and I’ll be retired so I won’t have any business deductions. Do I think my effective tax bracket in retirement will be lower or higher than it is now?” If I think it will be lower then I’d fund a Traditional IRA. If I think it will be higher then I’d fund a Roth IRA.
If you think that you would be better off with a Roth IRA and have a Traditional IRA in 2010 you have an opportunity to move money from your Traditional IRA to a Roth IRA. Normally there are very rigid rules that govern IRAs.
In 2010 you may convert your Traditional IRA into a Roth IRA regardless of your household income. You will have to pay taxes on this converted money, but that will be the last time you ever pay taxes on that money again.
For more information call or contact KLG.
Neither one of these solutions is the right answer for everyone. The right answer depends on a variety of factors including your current effective tax bracket and your future effective tax bracket. What I like to ask is, “Right now I have mortgage interest deductions, dependent deductions, and business deductions, so my effective tax bracket is quite low. When I’m retired my mortgage interest deduction will be low if any, my non-deductible kids had better be moved out, and I’ll be retired so I won’t have any business deductions. Do I think my effective tax bracket in retirement will be lower or higher than it is now?” If I think it will be lower then I’d fund a Traditional IRA. If I think it will be higher then I’d fund a Roth IRA.
If you think that you would be better off with a Roth IRA and have a Traditional IRA in 2010 you have an opportunity to move money from your Traditional IRA to a Roth IRA. Normally there are very rigid rules that govern IRAs.
In 2010 you may convert your Traditional IRA into a Roth IRA regardless of your household income. You will have to pay taxes on this converted money, but that will be the last time you ever pay taxes on that money again.
For more information call or contact KLG.