Is it Smart to Convert to Roth IRA?

According to new laws created by the federal government, almost everyone is now eligible to convert to Roth IRA. IRA stands for the Individual Retirement Arrangement. This is a special retirement under the US law that is not normally taxed if you are able to meet the conditions provided. The tax laws in the United States will exempt retirement savings from taxes, depending on your circumstances. With a Roth IRA, you are granted a tax break on the money that is withdrawn from your plan when you are retired. Most other plans only allow exemption on some of the finances that stay in the account.

The Roth IRA can contain investments like stocks and bonds or real estate. It can also be a part of an annuity. This is a contract or endowment that is purchased from a life insurance company. The IRS mandates the eligibility and filing status requirements for the Roth IRA. The tax structure and additional flexibility that are associated with a Roth IRA send people to lawyers to convert their plan almost daily. If you have a qualified pension, profit sharing, or a bonus plan like a 401(k), then you can roll over these amounts into a Roth IRA. You can also use annuity plans and tax-sheltered annuity plans to convert. If you have a deferred compensation plan from the state or local government, this plan can also be converted. You don’t even need to roll these plans into a traditional IRA first, so it may be worth it to convert for the tax exemption.

According to the Wealth Counsel, there are no required minimum distributions with a Roth IRA. In a traditional IRA, seniors normally need to start taking money out of the account by age 70 and a half. You can also continue to put money into the account, even after you turn 70 and a half. This is convenient for those who aren’t done saving, or want to gather up these assets to add to their estate when they pass away. There are certain restrictions to this action. First of all, you must be either single or the head of household taxpayer, and earn up to $107,000 in adjusted gross income every year. This is the only way that you are permitted to contribute to your maximum account.

You can also give smaller contributions if your adjusted gross income is between $107,000 and $122,000. If you are married and filing jointly then you need to have up to $169,000 in AGI. This also applies to those who are qualified widows or widowers. According to the Maximum Contribution Limits of 2012, if you are under age 50 and meet the income limits, then you can contribute up to $5,000 per year to the account. If you are over 50 and meet the income requirements, you can put up to $6,000 into your Roth IRA. Five years after you convert to Roth IRA, or when you turn 59 and a half, you are permitted to distribute to beneficiaries and yourself. These distributions will be income-tax free. The best part about a Roth IRA may be the fact that it doesn’t become tax-deferred but legitimately tax-free as time goes on.

The money in your account can be withdrawn at any time for college expenses and up to $10,000 can be withdrawn tax-free when you want to buy or remodel your home. You can also stretch your Roth IRA just like you would a traditional IRA. When you pass away, your distributions will be paid over the actual life expectancy of your beneficiary. Your spouse can do a new rollover if he or she desires and name a new beneficiary that has a longer life expectancy to stretch out the life expectancy of the account. If you are considering the conversion to Roth IRA, talk to a lawyer today. With a legal advisor by your side, you’ll be able to make the best decision for your own financial comfort.